committed to building a better tomorrow · looking forward, we are committed to building a better...

To be your premier bank

Buildcustomer satisfaction and provide quality and professional service

Offerrewarding career opportunities and cultivate staff commitment

Createvalues and deliver superior returns to shareholders

Social ResponsibilityWe care for and contribute to our communities

PerformanceWe measure results and reward achievement

IntegrityWe uphold trustworthiness and business ethics

RespectWe cherish every individual

InnovationWe encourage creativity

TeamworkWe work together to succeed

OuR VISIOn OuR mISSIOn OuR CORe ValueS

Stock Code: 2388

Achieving Growth, Quality and Excellence

Summary Financial Report

2006This Summary F inancia l Report only gives a summary of the information and part iculars contained in the “2006 Annual Report” (“Annual Report”) of the Company from which this Summary Financial Report is derived. Both the Annual Report and this Summary Financial Report are available (in English and Chinese) on the Company’s website at www.bochk.com and the Stock Exchange’s website at www.hkex.com.hk. You may obtain, free of charge, a copy of the Annual Report (English or Chinese or both) from the Company’s Share Registrar, Computershare Hong Kong Investor Services Limited, details of which are set out in the “Shareholder Information” section of this Summary Financial Report.

Combining the initials of mission

and core values, we have

BOC SPIRIT

a Better Tomorrow

Committed to Building

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Be environmentally friendly for our better future As a good corporate citizen, we do not use lamination and spot UV as normally adopted by the industry in our annual report 2006. Instead, we use varnishing, an environmentally friendly technique. The whole report is also printed on recyclable and elemental chlorine free paper. This demonstrates our efforts in working for the betterment of our future generations.

52/F Bank of China Tower, 1 Garden Road, Hong KongWebsite: www.bochk.com

BO

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Sum

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ancial R

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THIS REPORT IS PRINTED ON ENVIRONMENTALLY FRIENDLY AND ELEMENTAL CHLORINE FREE PAPER

1917

1997 20071977

19371957

CONTENTS

2 Financial Highlights

3 Five-Year Financial Summary

4 Chairman’s Statement

6 Chief Executive’s Report

14 Management’s Discussion and Analysis

47 Corporate Information

50 Board of Directors and Senior Management

54 Report of the Directors

60 Corporate Governance

68 Our People

70 Good Corporate Citizenship

73 Financial Section

107 Shareholder Information

110 Definitions

113 Branch Network & Corporate Banking Centres

ThemeThe Group forged ahead with the implementation of the Group’s 2006-2011 Strategic Plan and once again delivered impressive results in both financial performance and business development in 2006.

2007 witnesses the 90th anniversary of our service in Hong Kong. Over this long period of time, the Group has developed along with Hong Kong. We have been through the ups and downs and shared the fruitful results. The photographs on the cover page present the three main buildings of Bank of China in Hong Kong in different historical periods, as a reflection of the continuous development of the Group’s business here throughout the decades.

Looking forward, we are committed to building a better tomorrow for Hong Kong. We will continue to carry out vigorously the various strategic initiatives to make use of new opportunities, drive higher growth, and create higher value and returns for our shareholders, customers and staff.

BOC Hong Kong (Holdings) Limited (“the Company”) was incorporated in Hong Kong on 12 September 2001 to hold the entire equity interest in Bank of China (Hong Kong) Limited (“BOCHK”), its principal operating subsidiary. Bank of China Limited holds a substantial part of its interests in the shares of the Company through BOC Hong Kong (BVI) Limited, an indirect wholly owned subsidiary of Bank of China Limited.

BOCHK is a leading commercial banking group in Hong Kong. With over 280 branches and 440 ATMs and other delivery channels in Hong Kong, it offers a comprehensive range of financial products and services to retail and corporate customers. BOCHK is one of the three note issuing banks in Hong Kong. In addition, BOCHK has 14 branches and sub-branches in the Mainland of China to provide cross-border banking services to customers in Hong Kong and the Mainland. BOCHK is appointed by the People’s Bank of China as the Clearing Bank for Renminbi (RMB) business in Hong Kong.

The Company began trading on the main board of the Stock Exchange of Hong Kong on 25 July 2002, with stock code “2388”, ADR OTC Symbol: “BHKLY”.

Shareholders may elect in writing to receive Annual Report or Summary Financial Report (as the case may be) for all future financial years by applying to the Company‘s Share Registrar, Computershare Hong Kong Investor Services Limited, details of which are set out in the “Shareholder Information” of this Summary Financial Report.

This Summary Financial Report is available in both English and Chinese. A copy prepared in the language different from that in which you have received is available by writing to the Company‘s Share Registrar.

If you have any queries about how to obtain copies of the Company’s Annual Report or Summary Financial Report or how to access those documents on the Company‘s website, please call the Company‘s hotline at (852) 2846 2700.

FinanCiaL HigHLigHts

BOC Hong Kong (Holdings) Limited Summary Financial Report 2006 �

Restated 2006 2005 ChangeFortheyear HK$’m HK$’m +/(-)%

Net operating income before loan impairment allowances 21,309 18,174 17.25Operating profit 16,541 15,048 9.92Profit before taxation 17,139 16,502 3.86Profit for the year 14,284 13,856 3.09Profit attributable to the equity holders of the Company 14,007 13,596 3.02

Pershare HK$ HK$ +/(-)%Earnings per share 1.3248 1.2859 3.03Dividend per share 0.8480 0.8080 4.95

Atyear-end HK$’m HK$’m +/(-)%Capital and reserves attributable to the equity holders of the Company 84,655 79,935 5.90Issued and fully paid share capital 52,864 52,864 –Total assets 928,953 831,002 11.79

Financialratios % % Return on average total assets1 1.56 1.67 Return on average capital and reserves attributable to the equity holders of the Company2 17.02 18.27 Cost to income ratio 30.78 31.75 Gross impaired advances to customers as a percentage of gross advances to customers 0.26 0.56 Gross classified advances to customers as a percentage of gross advances to customers 0.57 1.28 Loan to deposit ratio3 49.32 52.27 Average liquidity ratio4 50.46 42.02 Capital adequacy ratio5 13.99 15.37

Profit for the year1. Return on average total assets = 　　　　　　 Daily average balance of total assets

2. Return on average capital and reserves attributable to the equity holders of the Company

Profit attributable to the equity holders of the Company = Average of the beginning and ending balance of capital and reserves attributable to the equity holders of the Company

3. Loan to deposit ratio is calculated as at year end. Loan represents gross advances to customers. Deposit also includes structured deposits reported as “Trading liabilities and other financial instruments at fair value through profit or loss”.

4. Average liquidity ratio is calculated as the simple average of each calendar month’s average liquidity ratio of BOCHK for the year.

5. Capital adequacy ratio is computed on the consolidated basis that comprises the positions of BOCHK and certain subsidiaries specified by the HKMA for its regulatory purposes and in accordance with the Third Schedule of the Banking Ordinance.

6. In June 2006, the Group acquired a 51% shareholding of an under common control entity, BOC Life. The financial statements have been prepared in accordance with the principles of merger accounting as set out in Accounting Guideline 5 “Merger accounting for common control combinations” issued by the HKICPA. The comparative amounts for the year 2005 have been restated in accordance with the principles for merger accounting to present the result and assets of the Group as if BOC Life had been combined with the Group during the year.

CapitalandreservesattributabletotheequityholdersoftheCompany Totalassets Profitattributabletotheequity

holdersoftheCompany

HK$’m

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0 02 03 04 05 06

HK$’m

900,000

800,000

700,000

600,000

500,000

400,000

300,000 02 03 04 05 06

HK$’m

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 02 03 04 05 06

Five-Year FinanCiaL summarY

Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited �

The financial information of the Group for the last five years commencing 1 January 2002 is summarised below:

Restated 2006 2005 2004 5 2003 5 2002 5

Fortheyear HK$’m HK$’m HK$’m HK$’m HK$’m

Net operating income before loan impairment allowances 21,309 18,174 10,352 11,595 12,089Operating profit 16,541 15,048 11,980 9,924 9,234Profit before taxation 17,139 16,502 14,252 8,691 8,068Profit for the year 14,284 13,856 12,121 8,102 6,914Profit attributable to the equity holders of the Company 14,007 13,596 11,963 7,963 6,787

Pershare HK$ HK$ HK$ HK$ HK$

Earnings per share 1.3248 1.2859 1.1315 0.7532 0.6419

Atyear-end HK$’m HK$’m HK$’m HK$’m HK$’m

Advances and other accounts 352,858 338,403 309,211 300,094 308,332Total assets 928,953 831,002 796,776 762,587 735,536Daily average balance of total assets 915,900 831,789 776,792 752,058 737,779Deposits from customers2 703,776 639,031 631,330 600,642 600,977Total liabilities 842,313 749,289 727,016 701,170 677,751Issued and fully paid share capital 52,864 52,864 52,864 52,864 52,864Capital and reserves attributable to the equity holders of the Company 84,655 79,935 68,521 60,261 56,671

Financialratios % % % % %

Return on average total assets 1.56 1.67 1.56 1.08 0.94Cost to income ratio 30.78 31.75 34.72 32.79 33.26Gross impaired advances to customers as a percentage of gross advances to customers 0.26 0.56 – – –Gross classified advances to customers as a percentage of gross advances to customers1 0.57 1.28 2.95 5.82 7.98Loan to deposit ratio2 49.32 52.27 49.61 51.38 53.42

1. The “Gross classified advances to customers as a percentage of gross advances to customers” for the years ended 2002, 2003 and 2004 are calculated using the same basis as the years ended 2005 and 2006, except for the inclusion of the effect of “repossessed assets” under HKFRS 5.

2. Since 2005, deposits from customers also include structured deposits reported as “Trading liabilities and other financial instruments at fair value through profit or loss".

3. On 1 January 2005, a number of new and revised HKFRSs and HKASs came into effect. The resulting changes in accounting treatment and presentation of various income statement and balance sheet items may render certain comparative figures for the years 2002, 2003 and 2004 not strictly comparable.

4. In June 2006, the Group acquired a 51% shareholding of an under common control entity, BOC Life. The financial statements have been prepared in accordance with the principles of merger accounting as set out in Accounting Guideline 5 “Merger accounting for common control combinations” issued by the HKICPA. The comparative amounts for the year 2005 have been restated in accordance with the principles for merger accounting to present the result and assets of the Group as if BOC Life had been combined with the Group during the year.

5. The financial information prior to 2005 had not been restated to reflect the adoption of merger accounting upon the acquisition of BOC Life as the difference before and after restatement is insignificant.

Grossclassifiedadvancestocustomersasapercentageofgrossadvancestocustomers

Advancesandotheraccounts Depositsfromcustomers

%

8

7

6

5

4

3

2

1

0 02 03 04 05 06

HK$’m

350,000

340,000

330,000

320,000

310,000

300,000

290,000 02 03 04 05 06 02 03 04 05 06

HK$’m

700,000

680,000

660,000

640,000

620,000

600,000

580,000

560,000

CHairman’s statement

It gives me great pleasure to report that the Group once again delivered impressivefinancialresultsin2006.Lastyear,theGroup’sprofitattributabletoshareholdersreachedHK$14,007million,up3.0%from2005.EarningspersharewereHK$1.3248,alsoup3.0%.Netoperatingincomegrewstronglyby11.0%toHK$23,099millionwhilepre-provisionnet operating income increased 17.2% to HK$21,309 million. The Group’s total assetsincreased to HK$928,953 million, up 11.8% from a year ago. Asset quality improvedfurtherasreflectedinthesignificantlylowerimpairedloanratioof0.26%,versus0.56%in2005.

The Board is recommending a final dividend for 2006 of HK$0.447 per share at the Annual General Meeting on 23 May 2007. That, together with the interim dividend of HK$0.401 per share, means a

total dividend of HK$0.848 per share for the whole year. (Total dividend for 2005: HK$0.808 per share.) The Group’s total dividend payout as a percentage of profit attributable to shareholders

will be 64.01%, versus 62.83% a year ago.

We are proud that the Group’s dividend payout per share has been on the increase for the fourth consecutive year since the Group’s public listing in 2002. This should be taken as an ample reflection of our commitment to deliver ever higher shareholder value through achieving good financial results and maintaining a strong financial position.

In line with our forecast, the Hong Kong economy maintained its growth momentum, fueled primarily by investment, exports and domestic consumption. Business sentiments

remained largely positive while private consumption increased with the improved job market and higher wages. The financial services market was particularly buoyant, driven by

vigorous stock trading and IPO activities, including that of the BOC Group. External trade also grew with stronger demand from the Mainland and the Asia Pacific

region. The development of the property market also returned to a more stable condition as interest rates were leveling off. Inflationary pressure in Hong Kong remained mild and even subsided somewhat because of lower oil prices in the latter half of the year. On the whole, Hong Kong’s banking and financial services sector had a spectacular year as market sentiments were buoyed by the strong local economy and stabilising US interest rates. Credit demand from banks was boosted by more active stock market, private consumption, increased trade activities and investment. The asset level and quality of banks in general also saw further improvement.

For us, 2006 will be remembered as a watershed year for it marked the commencement of the Group’s 2006-2011 strategic plan announced around this time last year. Our 2006-2011 strategic plan contains clearly defined goals and standards which are crucial to our development in the medium term, particularly as regards how far we have moved forward in realising our vision of becoming a top financial services group with a powerful base in Hong Kong, a solid presence in China and a strategic foothold in the region.

Facilitated by the largely favourable operating environment, the Group forged ahead aggressively with the implementation of the 2006-2011

strategic plan. Indeed we have made noteworthy progress in some major areas which are highlighted below.

A key focus of our strategic plan is to strengthen our leading position in Hong Kong and drive business growth. Last year, we further enhanced

Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited �

our services to corporate clients and at the same time built up our mid-cap and SME business. We also strove to strengthen our cross-border banking services and build up our China business. The very encouraging growth of 17.2% in pre-provision net operating income last year demonstrated unequivocally the effectiveness of our efforts so far in the above areas. Specifically we experienced a healthy growth in gross loans and advances of 3.9%, which was driven primarily by the rise in corporate, SME and China loans. Our China operation continued to perform well in terms of both loan growth and profitability.

We have been actively seeking out and exploring suitable M&A opportunities to develop new capabilities. In June 2006, we succeeded in acquiring at a consideration of HK$900 million a 51% controlling stake in BOC Life which was indirectly and wholly owned by our parent, BOC. Based in Hong Kong, BOC Life is engaged mainly in the offering of life insurance policies and also in writing life insurance policies linked to investment products and retirement scheme management. This acquisition represents a breakthrough in our attempt to enhance business capabilities that can eventually help us diversify our income base, increase profit margin and develop a full-service business model.

The growth potential of the China market was a major consideration when we mapped out our current strategic plan. To ensure a bigger presence in this market and in response to the implementation by China’s banking authorities of the new Regulations on Administration of Foreign Banks that came into force on 11 December 2006, the Board considered that the best option for the Group would be to adopt a dualistic approach in its China business model. That is, Nanyang Commercial Bank, Limited (Nanyang), our wholly-owned subsidiary, will be incorporated as a local bank in China while BOCHK will continue operating as a foreign-funded bank in China. Application for incorporating in China was submitted by Nanyang in January this year. Once approved, Nanyang, a well-established banking brand in China with extensive experience, will immediately embark on offering comprehensive banking services in China, including RMB retail banking services. Given its strong corporate and institutional client base, BOCHK should remain a foreign-funded bank in China as this status would allow it to maintain its competitive edge in corporate banking and foreign-exchange businesses in the Mainland. Chiyu Banking Corporation Limited, another subsidiary of BOCHK, would also maintain its foreign bank status and continue with its existing operation in China.

The Group maintained its leadership in conducting RMB banking services in the local market. Earlier this year, BOCHK was authorised by the People’s Bank of China to continue serving as the clearing bank for RMB business in Hong Kong.

On a related front, in anticipation of the upcoming issuance of RMB-denominated bonds in Hong Kong, the role of BOCHK as the clearing bank in Hong Kong could be expanded to cover yuan bonds as well. We welcome these developments which testify to our unique strength in RMB banking and our important role in supporting the development of financial services in both the Mainland and Hong Kong.

This year we celebrate the fifth anniversary of the Company’s public listing in Hong Kong. Being the Chairman, I am heartened that we have outgrown our age as a public company. By overcoming major adversities, both external and internal, in the past few years and by excelling ourselves on a constant basis, we have emerged a better managed and more prestigious banking group in Hong Kong. Above all, I am proud that our strenuous and incessant effort in enhancing corporate governance have won us due recognition by the business community. Last year, the Company was named one of the top ten companies for best corporate governance among the 174 locally listed companies in Hong Kong. Our practice in disclosure was also given recognition by a leading professional institute. All these reflect our high standards of corporate governance that stem from a strong commitment to best international practices in accountability and transparency.

The Group’s 2006-2011 strategic plan represents our continued commitment to build a better future for all our stakeholders. For 2007 and beyond, we will continue to carry out vigorously the various strategic initiatives under the plan to maintain our current lead, drive higher growth and better equip ourselves for new opportunities. As a matter of course, we will measure ourselves by the progress and achievement we have made against these initiatives.

Finally, I wish to thank my fellow Board Members for their guidance and counsel. My heartfelt thanks also go to our shareholders and customers for their continued support. Our employees remain our most valuable asset for helping us to break new grounds and set new records again and again. They are the strongest foundation for our present and future growth. Their good work is deeply appreciated by the Board and the Management.

XIAOGangChairman

Hong Kong, 22 March 2007

CHieF exeCutive’s repOrt

Last year we forged ahead with implementing the Group’s 2006-2011 Strategic Planapproved by the Board a year ago. The results were gratifying and I am quite surethat2006willgodownintheGroup’shistoryasayearofnewrecordsandsignificantachievementsinouroperation.

Our outstanding results were shaped by two main factors. First, the overall operating

environment was favourable on account of the continuing growth of the Hong Kong

economy, the pace of which was even more pronounced in the latter half of the year.

Business sentiments remained basically upbeat among nearly all major sectors. In terms of

overall performance, the financial sector stood out from the rest due to an exceptionally

robust stock market and rising demand for credit and related services. Of equal, if not

greater, importance, by capitalising on the strong foundations and impetus built up

in recent years through systematic corporate reforms, last year we were in a better

position than ever to move ahead full steam to grow our business on all fronts. As

a result, considerable progress was made in executing our strategic initiatives as

approved by the Board, particularly those aimed at generating higher organic growth

and enhancing service capabilities.

I am proud of our success in bringing the Group’s profit attributable to shareholders,

dividend payout, operating income and pre-provision profit to new peaks since the Group’s

restructuring and merger in 2001 and public listing in Hong Kong in 2002. The growth

rates of our pre-provision profit and net interest margin were amongst the

highest in the market. Our improvement in both asset quality and cost-to-

income ratio was also remarkable.

PerformanceHighlightsOur broad-based business growth and good financial performance

amply reflected our firm commitment to the goals set down in our

Strategic Plan and the positive results of our key strategic initiatives.

In 2006, the Group’s profit attributable to shareholders reached

HK$14,007 million, up 3.0% from a year ago. This represented

the fourth consecutive year of growth since our IPO in 2002

and also the highest level for the Group so far. Earnings per

share were HK$1.3248, also up 3.0%. Following a very strong

growth of 17.5% last year, the Group’s operating profit before loan

impairment allowances surged by an even higher 18.9% to HK$14,751

million. The Group’s asset quality improved further. Our classified loan

ratio and impaired loan ratio dropped to 0.57% and 0.26% respectively,

outperforming most of our peers. Our cost-to-income ratio of 30.78% was

also better than the market average.

The Group’s return on average total assets was 1.56%, versus 1.67%

in 2005. Return on total shareholders funds stood at 17.02%, versus

�Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited

18.27% in 2005. The decreases were due mainly to lower

loan impairment write-back and revaluation gain on

investment properties, if not for which we would have

recorded increases instead.

Our capital adequacy ratio remained at the healthy level of

13.99% while liquidity ratio was 50.46%.

We adhered to the principle of prudent cost management,

having regard to the need to drive income and profit

growth as well as to invest in the future. Operating

expenses last year amounted to HK$6,558 million, up

13.6%, due mainly to higher staff costs. Regardless of that,

the Group’s cost efficiency improved because the growth

of operating income outpaced that of expenses by a wide

margin. Cost-to-income ratio improved by 0.97 percentage

point to 30.78%.

SignificantAchievementsLast year we registered considerable growth by focusing on

business segments with higher profit margin. Net operating

income before loan impairment allowances grew strongly

by 17.2% year-on-year to HK$21,309 million, of which

net interest income was up 20.7% to HK$15,835 million.

This substantial rise in net interest income owed primarily

to the 9.8% increase in average interest-earning assets to

HK$835,493 million and also to the widening of the net

interest margin to 1.90%, versus 1.72% a year ago.

The Group’s vigor in driving broad-based organic growth

was demonstrated in the performance of its key business

segments, including corporate banking, retail banking,

treasury and China business.

Our large corporate lending, SME lending and trade

f i nanc ing i n c rea sed by 6 .1%, 10 .5% and 4 .9%

respect i ve ly. Our wea l th management c l ient base

expanded substantially by 45.9% while the amount of

assets under management grew by 42.9%. Fees and

commissions income soared by 24.4%, which was the

direct result of both Hong Kong’s stock market boom

that boosted securities brokerage income and the rise in

asset management income. The fee income from stock

brokerage shot up by 93.7% to HK$1,383 million while

that from asset management was up 56.2% to HK$317

million. We also recorded a hefty increase of over 60%

in total investment and insurance fee income due mainly

to higher investment and insurance fee income as well

as BOC Life’s insurance income. Our treasury registered

a strong growth of 45.8% in operating income and a

corresponding rise in operating profit. In the Mainland,

our lending business continued to expand, with a healthy

growth of 22.7% in total advances to customers.

In addition to driving business growth, we keep our

eyes open to other expansion opportunities, with a view

to enhancing our service capabilities. In mid-2006, we

completed the acquisition from our parent BOC of a 51%

controlling stake in BOC Life. The synergy arising from this

acquisition was already evident in the closer cooperation

between the Group and BOC Life. In 2006, operating

profit of BOC Life was HK$174 million, up 33.8% from

the year before.

Last year, we were also proactively preparing ourselves

to mee t emerg ing needs by e s t ab l i sh ing a new

business platform. These new business needs include

the introduction by China of the systems of Qualified

Domestic Investment Institutions (QDII) and Qualified

Foreign Investment Institutions (QFII), cash management,

asset management, bank assurance and stock brokerage.

Approval of the China Banking Regulatory Commission was

obtained for the Group to operate as a QDII.

We continued to work closely with BOC for mutual

benefits last year. For instance, together with our parent

we launched a new service that enabled our wealth

management customers to enjoy our banking services at

BOC’s branch network in the whole Asia Pacific region.

In the area of corporate banking, active business referrals

between BOCHK and BOC contributed to business growth

for both. At the same time, we started launching some

well-developed treasury products at BOC’s regional

branches and subsidiaries. This was a significant step that

would eventually help us develop a strategic presence

in the region. Through such close cooperation with our

parent, we succeeded in expanding our customer base and

strengthening our Mainland business.

�

ChiefexeCutive’sRepoRt

BOC Hong Kong (Holdings) Limited Summary Financial Report 2006

W e r e m a i n e d t h e l o c a l l e a d e r

in pe r sona l RMB bank ing . W i th

ou r supe r io r i t y i n th i s a rea we

con t inued to con t r i bu te to the

l ong - te rm deve lopment o f RMB

banking bus iness in Hong Kong.

We were once again authorised by

the People’s Bank of China (PBC)

to be the local RMB clearing bank.

More recently PBC announced the

a p p ro v a l o f y u a n - d e n o m i n a t e d

bonds to be issued in Hong Kong

in the near future. We welcome

this as the issuance of yuan bonds

would be highly important for Hong

Kong to reinforce its status as a

regional financial centre. In March

2006, in cooperat ion with Hong

Kong Interbank Clear ing L imited

we launched the RMB Settlement

System that provides a safe and

efficient electronic platform for RMB

transactions in Hong Kong.

As recommended by the Board ,

the deve lopment of the Group’s

China business would take a two-

p ronged app roach whe reby ou r

wholly-owned subsidiary Nanyang

Commerc ia l Bank (Nanyang) has

applied for local incorporation in the

Mainland and BOCHK would remain

a fore ign-funded bank in China.

Chiyu, another of our subsidiary

banks, would also remain a foreign-

funded bank. This, we believe, would

be the best approach for us to fully

capitalise on the unique merits of

the BOCHK Group to enter into

the newly opened reta i l banking

sector and better focus on the faster

growing and more profitable corporate

banking sector, thus enabl ing us

to build a stronger presence in the

Mainland market as a whole.

A new Relationship-Product-Channel

(RPC) business model is introduced

to enhance customer relat ionship

m a n a g e m e n t , c e n t r a l i s e a n d

professionalise product development,

and op t im i se ou r channe l s and

w o r k f l o w t o d r i v e s a l e s a n d

marketing more effectively at our

branches, electronic channels and call

centres. After months of preparation,

this model was ful ly formulated,

approved by the Board and rolled out

in March this year. This model will

enable us to significantly improve

the Group’s overall operation and

w o r k f l o w, a n d a c h i e v e h i g h e r

productivity, lower operational risk,

better delegation of authority, and

optimised staffing.

Our c red i t ra t ings cont inued to

improve. In June 2006, Fitch Ratings

upgraded BOCHK’s individual rating

to “B”. In July, Moody’s Investors

Service upgraded our rating outlook

from “stable” to “positive”. As a

further proof of our business and

credit outlook, in mid-February 2007,

Standard & Poor’s Ratings Services

raised our counterparty credit ratings

to “A-/A-2” from “BBB+/A-2”. It also

upgraded our fundamental strength

rating to “B” from “C+”.

BusinessReviewIn 2006 we succeeded in growing our

business on all major fronts.

Loans and advances continued to

grow with market demand. Following

a relatively slow first half caused

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�


Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited

chiefly by our conscious effort to

pursue higher net interest margin

and ensure better asset and liability

management, our lending business

picked up its growth momentum again

in the second half of the year after

we had adjusted our growth strategy

in accordance with market conditions.

Total loans to customers increased to

HK$347,090 million, up 3.9%. Loans

for use outside Hong Kong, particularly

in the Mainland, surged by 27.3%

while loans for use in Hong Kong

increased marginally. Trade finance

increased by 4.9% as external trade

continued to flourish.

The Group’s retail banking business

sustained its high growth momentum

last year. Total operat ing income

was up 14.3%, of which net interest

income and other operating income

were up 7.2% and 34.3% respectively.

The substant ia l g rowth in other

o p e r a t i n g i n c o m e o w e d m a i n l y

to h igher income from fees and

commissions which grew by 38.8% on

the back of robust stock trading and

IPO activities in Hong Kong. Residential

mortgage lending dropped by nearly

5% in the first half due to fierce

competition on mortgage rates but

rebounded strongly in the second half

after the launching of a range of new

mortgage products. New mortgage

loans shot up by over 90% and we

regained our market lead toward the

end of the third quarter in 2006.

O u r i n v e s t m e n t a n d i n s u r a n c e

b u s i n e s s m a i n t a i n e d i t s s t ro n g

growth momentum last year. Stock

brokerage volume recorded a hefty

increase of 112% while the sales

of open-end funds soared by 90%.

Taking advantage of the IPO boom

in Hong Kong , we agg re s s i v e l y

expanded our IPO receiving bank

services and IPO financing business

by act ing as the major receiv ing

bank for the IPO of several leading

companies . Dur ing the year, the

G roup ’s I PO f i nanc ing p rov ided

to corporate and retail customers

amounted to over HK$200 bill ion,

representing an increase of over 10

folds versus 2005. We responded

to market needs by launching eIPO

f inancing serv ices. That, coupled

with our effective marketing and

execution, resulted in record high

n u m b e r s o f I P O s u b s c r i p t i o n s

received and processed.

A s m e n t i o n e d a b o v e , w e a l t h

managemen t rema ined a ma jo r

business focus. Through proactive

sales and marketing as well as service

enhancement and customisat ion,

the number of wealth management

customers and the amount of assets

under management increased by

45.9% and 42.9% respectively.

The Group’s card business continued

to grow in terms of card issuance

(+4.1%), card advances (+17.6%),

cardholder spending (+13.7%) and

merchant acquiring volume (+22.5%).

On the personal RMB banking front,

the Group continued to be the local

market leader with the largest deposit

base and offering a wide range of

related services. We also maintained

our lead in RMB card issuance and

merchant acquiring, which increased

by 22.7% and 91.9% respectively last

year. Cardholder spending was up

46.9%.

The G roup ’s co rpo ra t e bank ing

business saw substantial growth last

year, especially in the second half.

Tota l operat ing income grew by

12.3%, of which net interest income

was up 13.4% and other operating

income 8.6%. The rise in net interest

income was the result of our effort

in widening the loan spread. We also

consistently maintained our lead in

loan syndication in the Hong Kong,

Macau and Ma in land market a s

a whole.

At the same t ime, we continued

to drive the expansion of our SME

business through service innovation

and enhancement. The amount of SME

loans increased by more than 10%.

Again, through service enhancement

and work f low improvement , we

s t reng thened ou r t r ade f i nance

segment and increased our b i l l s

volume by a solid 16.5%.

Our Mainland business picked up

its growth momentum again in the

second half of 2006 after a relatively

s l o w f i r s t h a l f . To t a l a d v a n c e s

to cus tomers rose by 22 .7% to

HK$18,600 mil l ion while deposits

increased by 67.4% to HK$3,900

mi l l ion. Our asset qual i ty in the

Main land cont inued to improve .

C lass i f ied loan rat io dropped to

0.23%. Meanwhile our business scope

in China kept expanding. All our

14 branches and sub-branches are

now licensed to conduct derivatives

business and provide insurance agency

serv ice. Our wealth management

products were also extended to the

Mainland market.

T h e G r o u p ’s t r e a s u r y b u s i n e s s

continued to perform well last year

under a ref ined s t ructure and a

more rational portfolio management

strategy. Operating income rose by

45.8%. During the year, the Group

act i ve ly managed i t s inves tment

portfo l io to maximise the return

on residual funds, create a more

b a l a n c e d p o r t f o l i o a n d r e d u c e

concentration risks. On the product

s ide, market condit ions last year

fac i l i ta ted the deve lopment and

l aunch ing o f s t ruc tu red depos i t

products which turned out to be very

much in demand.

The performance of the Group’s

insurance segment was outstanding

last year. Total operat ing income

almost doubled to HK$6,894 million,

of which net interest income and other

operating income were up 48.7%

and 98.8% respectively. Following the

acquisition of a controlling stake in

BOC Life, the Group started offering

a more diversified range of insurance

p roduc t s to mee t the needs o f

customers. In 2006, a series of new

insurance products were introduced

and customers’ response was very

encouraging. Premium from new

business increased by 77%.

10



OutlookLooking ahead, we are bas ica l l y

optimistic about the growth potential

of the local economy as investment

and internal consumption continue

to increase. This potential would be

underpinned by the levelling off or

possible reduction of US interest rates.

For the banking sector, new business

opportunities are on the horizon as

China proceeds to expand the scope

of RMB banking services in Hong

Kong and fulfill her WTO obligations

by further liberalising her financial

services. That said, we are also mindful

that competition is likely to intensify

both domestically and offshore, and

that the movement of interest rates

must be watched closely and managed

proactively. At the same time, though

inflationary pressure is still not a major

issue, rising costs should be a concern

for banks, and there are signs that

the international financial market is

likely to become more volatile in the

foreseeable future.

O u r r e c o r d - b r e a k i n g f i n a n c i a l

performance and business growth

last year speak forcefully for the solid

foundations and capabilities we have

built up in recent years as well as our

effective execution of the Group’s

strategic initiatives. However, as a

banking group with a vision, we are

constant ly seek ing improvement.

Going forward, we will follow closely

and measure our progress against the

goals and priorities laid down in the

Group’s 2006-2011 Strategic Plan so

that we can excel in what we pursue,

lead the market and enhance our

capabilities.

In 2007 and beyond, we will drive

o r g a n i c g r o w t h b y e n h a n c i n g

ou r bu s i ne s s s t r u c tu re t h rough

diversification. In particular, we will

focus on h igh-marg in segments ,

notably wealth management and

insurance. We have already attained

certain synergy with BOC Life upon

becoming its major shareholder. We

wil l deepen that synergy through

closer cooperation.

For the purpose of enhancing business

capabi l i t ies, we wi l l explore new

opportunit ies local ly and beyond.

Our main focus wi l l be on asset

management, stock brokerage and

insurance.

As mentioned above, the Group’s

Ch ina bus iness s t ra tegy i s two-

p ronged . Nanyang w i l l a c t i v e l y

develop full banking services in the

Mainland with an emphasis on retail

banking. BOCHK, on the other hand,

will continue to operate as a foreign-

funded bank in China and focus

on corporate banking and foreign

exchange businesses. This, we believe,

i s the best bus iness mode l that

will allow us to develop retail and

wholesale banking simultaneously

in the vast Mainland market. It will

enable us to capitalise on Nanyang’s

unique brand awareness and expertise

Our Telford Garden Branch was granted for the second year in a row the Total Quality Service Regime – Top Performer 2006 – under the Category of Service and Entertainment organised by the MTR Corp

11



Our sponsorship of Growth Leadership Forum was well-received by SME clients which could share their experience in business

i n R M B re t a i l b a n k i n g , w e a l t h

m a n a g e m e n t a n d S M E b a n k i n g

services. It will also maintain BOCHK’s

superior market position in servicing

large corporate clients and conducting

foreign exchange business in China.

To support this business model and to

drive business growth in the Mainland,

we will expand our branch network

by focusing on major cities in the

Pearl River Delta, Yangzi River Delta

and the coastal region, including

Dongguan, Suzhou and Hangzhou. We

aim to more than double the number

of outlets in China by 2009 with a

corresponding increase in workforce. It

follows that we will allocate adequate

financial and other resources for the

running of this expanded branch

n e t w o r k , s e r v i c e e n h a n c e m e n t ,

bus iness development and brand

building in the Mainland.

We will continue to work closely with

our parent BOC for mutual gains,

part icular ly in corporate business

referra l and the deve lopment of

h igh-y ie ld segments l i ke wea l th

m a n a g e m e n t a n d c r o s s - b o r d e r

services.

Internally we will vigorously implement

the RPC model to further enhance

opera t iona l e ff i c i ency and dr i ve

long-term business growth. We will

ensure high standards of corporate

governance, risk management and

internal control. Meanwhile we will

continue to deepen the Group’s new

corporate culture and enforce human

resources reforms so that we can build

up and retain a stronger work team.

This year we enter the 90th year of

Bank of China’s operation in Hong

Kong. For nearly a century, we have

witnessed and contributed to the rise

of Hong Kong as a leading economic

player in the Asia Pacific region. Like

Hong Kong, we have been through

ups and downs but, again, like Hong

Kong, we have a lways emerged

stronger than before. It is with this

resilience, I am convinced, that the

Group will continue to grow with and

play a positive part in the Hong Kong

economy and society.

In concluding, I wish to express my

heartfelt gratitude to both the Board

and the staff for a great year once

again. Together we will move on to

better ourselves and create higher

va lue fo r ou r sha reho lde r s and

customers.

HEGuangbeiVice Chairman and Chief Executive


customer satisfaction and provide quality and professional service

Through the BOCHK Wealth Management Investment Seminar, customers could have a better understanding of our financial and investment products

management’s DisCussiOn anD anaLYsis

BOC Hong Kong (Holdings) Limited Summary Financial Report 2006 14

This section provides an analysis of the Group’s performance, financial position, and risk management. The following analysis

should be read in conjunction with the financial statements included in Annual Report. The Group has applied the merger

accounting method in accounting for the combination with BOC Life on 1 June 2006. As a result, the 2005 comparative

figures were restated as appropriate.

PERFORMANCEMEASUREMENT

The Group registered record earnings in 2006. This was essentially the result of the Group’s strong and broad-based business

growth achieved through the effective execution of growth strategies and initiatives. The following table summarises the

Group’s overall performance in 2006.

FinancialIndicators Performance ResultHighlights

ROE1 and ROA2 • Operating profit before loan impairment allowances increased by 18.9% to HK$14,751 million.

• Profit attributable to shareholders increased by 3.0% to HK$14,007 million.

• ROE and ROA were 17.02% and 1.56% respectively.

• ROE and ROA before loan impairment allowances rose by 1.25 percentage points and 0.12 percentage point respectively to 17.92% and 1.61% respectively.

• Operating profit before loan impairment allowances increased by 18.9% and profit attributable to shareholders rose by 3.0%

• ROE: 17.02%• ROA: 1.56%

Dividend payout ratio The proposed final dividend plus interim dividend represent a total payout ratio of 64.01%, which is within the range set out in the Group’s dividend policy.

• Dividend payout ratio: 64.01%

Interest margin and non-interest income3 • Net interest margin rose from 1.72% in 2005 to 1.90% in 2006 mainly due to the rise in contribution from net free fund.

• Non-interest income increased by 8.4%, primarily driven by investment-related agency fee income. Non-interest income to total operating income ratio decreased by 2.10 percentage points to 25.69% due to a larger increase in net interest income relative to non-interest income.

• Net interest margin: 1.90%• Non-interest income to total

operating income ratio: 25.69%

Cost efficiency Cost-to-income ratio was further lowered by 0.97 percentage point to 30.78% mainly due to a faster increase in operating income than operating expenses. Total income increased by 17.2% while operating expenses increased by 13.6%.

• Cost-to-income ratio: 30.78%

Asset quality • Formation of new classified loans4 remained at a low level of 0.3% of total loans. Classified loan ratio fell significantly by 0.71 percentage point from 1.28% in 2005 to 0.57% in 2006.

• Impaired loan5 ratio declined by 0.30 percentage point to 0.26% at end-2006.

• Classified loan ratio: 0.57%• Impaired loan ratio: 0.26%

Capital strength and liquidity Capital adequacy ratio and liquidity ratio remained strong.

• Capital adequacy ratio: 13.99%• Liquidity ratio: 50.46%

(1) ROE represents return on average capital and reserves attributable to the equity holders of the Company.(2) ROA represents return on average total assets and is defined in “Financial Highlights”.(3) Non-interest income represents net fees and commission income, net trading income, net loss on investments in securities, net insurance premium, other operating income

and net insurance benefits and claims.(4) Classified loans are advances to customers which have been classified as “substandard”, “doubtful” and “loss” under the Group’s classification of loan quality.(5) Impaired loans are advances where objective evidence exists that full repayment of principal or interest is considered unlikely.

ManageMent’sDisCussionanDanalysis

Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited 1�

BUSINESSENVIRONMENT

In 2006, the operating environment remained largely positive. Bolstered by active investment, strong domestic consumption

and robust external trade, the Hong Kong economy registered above-the-trend growth for the third consecutive year. Hong

Kong’s real GDP growth reached 6.8%. Inflation remained mild with the composite consumer price index on average 2.0%

higher than 2005. The labour market improved further with the unemployment rate dropping to 4.4% by year end.

During the first half of 2006, the US Federal Funds Target Rate was raised by an aggregate of 100 basis points to 5.25%. In

line with the US interest rate hike, both average 1-month and 3-month HIBOR increased. In the second half of 2006, despite

the existence of inflationary pressure, the US Federal Funds Rate levelled off due to the softening economy. On the other

hand, both average 1-month and 3-month HIBOR declined in view of abundant liquidity in the local banking sector. The yield

curve flattened, as evidenced by the narrowing of the average interest spread between 2-year Exchange Fund notes and its

10-year counterparts from 82 basis points to 31 basis points at end-2006 which compressed the reinvestment return on debt

securities.

The interest rate differential between USD and HKD widened in 2006. In 2006, the Group’s average HKD Prime rates increased

by 186 basis points compared to the previous year whereas the average US Federal Funds Rate increased by 176 basis points

for the same period. Meanwhile, the average HKD 1-month HIBOR and 1-month USD LIBOR for 2006 increased by 118 basis

points and 171 basis points respectively.

1- month HIBOR3- month HIBOR

HongKongRealGDP HongKongUnemploymentRate

HIBORFederalFundsTargetRate

YoY%

6.0

5.5

5.0

4.5

4.0

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

11.0

8.0

5.0

2.0

Source: Bloomberg

05Q1 05Q2 05Q3 05Q4 06Q1 06Q2 06Q3 06Q4

Source: Bloomberg

5.5

5.0

4.5

4.0

Source: Bloomberg Source: Bloomberg

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

5.0

4.0

3.0

Year/Quarter

%

% %



The local stock market was buoyant in 2006 amidst ample

liquidity. Market sentiments were further boosted by the

enthusiastic response to the spate of major IPOs, especially

in the second half of the year. The total fund raised by IPOs

in 2006 was HK$334bn, more than double that of 2005. The

Hang Seng Index surged by 34.2% to close at 19,964.72

points at end-December 2006. The robust stock market helped

boost the equity investment and IPO-related businesses of the

banking sector.

After a relatively quiet first half, the local property market

regained some growth momentum in the second half of 2006.

The number of transactions increased as US interest rates

appeared to have peaked in the latter half of 2006. Intensified

market competition, however, meant greater downward

pressure on mortgage yield. HIBOR-linked mortgage plans

became more popular as the 1-month HIBOR remained at a

relatively low level throughout the year.

In 2006, the local banking sector continued to operate under a benign credit environment. The classified loan ratio of retail

banks as a whole improved from 1.37% at end-2005 to 1.11% at end-2006. Overall, the local banking sector was able to

benefit from the continuous economic growth, buoyant investment markets and improved asset quality, but at the same time,

faced challenges from intensified market competition and limited local lending opportunities.

CONSOLIDATEDFINANCIALREVIEw

The Group’s financial performance in 2006 was satisfactory. Both operating profit before loan impairment allowances and

profit attributable to shareholders reached record highs. In view of the Group’s strong core earnings growth, operating profit

before loan impairment allowances increased by HK$2,348 million, or 18.9%, to HK$14,751 million. Despite a fall in both

loan impairment allowances write-back (loan impairment allowances write-back was mainly due to loan recoveries) and

investment property revaluation gain, profit attributable to shareholders increased by HK$411 million, or 3.0%, to HK$14,007

million. Earnings per share were HK$1.3248, up HK$0.0389. Return on average total assets (“ROA”) and return on average

shareholders’ funds (“ROE”) were 1.56% and 17.02% respectively. By comparison, ROA and ROE appeared lower in 2006

because of the relatively high loan impairment allowances write-back and revaluation gain on investment properties recorded

in 2005. Indeed, ROA and ROE before loan impairment allowances in 2006 improved by 0.12 percentage point and 1.25

percentage points to 1.61% and 17.92% respectively over 2005.

HangSengIndex

20,000

19,000

18,000

17,000

16,000

15,000

14,000

Source: Bloomberg

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

14,00713,596

11,963

7,963

6,787

2,768

Year Year

* Excluding BOC Life

13,162

12,08911,595

10,352

12,403

14,751

Operatingprofitbeforeloanimpairmentallowances

HK$’m

15,000

10,000

5,000

0 01* 02* 03* 04* 05 06

Profitattributabletoequityholders

HK$’m

15,000

10,000

5,000

0 01* 02* 03* 04* 05 06



* Excluding BOC Life

FinancialHighlights

RestatedHK$’m, except percentage amounts 2006 2005

Operating income 21,309 18,174

Operating expenses (6,558) (5,771)

Operating profit before loan impairment allowances 14,751 12,403

Reversal of loan impairment allowances 1,790 2,645

Others 598 1,454

Profit before taxation 17,139 16,502

Profit attributable to equity holders of the Company 14,007 13,596

Earnings per share (HK$) 1.3248 1.2859

Return on average total assets 1.56% 1.67%

Return on average shareholders’ funds* 17.02% 18.27%

Return on average total assets before loan impairment allowances 1.61% 1.49%

Return on average shareholders’ funds before loan impairment allowances* 17.92% 16.67%

Net interest margin 1.90% 1.72%

Non-interest income ratio 25.69% 27.79%

Cost-to-income ratio 30.78% 31.75%

* Shareholders’ funds represent capital and reserves attributable to the equity holders of the Company.

Year Year

0.398

0.515

0.715

0.8080.848 1.2859

1.3248

1.1315

0.7532

0.6419

0.2618

Earningspershare

HK$

1.50

1.00

0.50

0 01* 02* 03* 04* 05 06

Dividendpershare

HK$

1.00

0.75

0.50

0.25

0

02* 03* 04* 05 06


BOC Hong Kong (Holdings) Limited Summary Financial Report 2006 1�

Analyses of the financial performance and business operations of the Group for 2006 are set out in the following sections.

NetInterestIncomeandMargin

HK$’m, except percentage amounts 2006 2005

Interest income 40,271 26,177

Interest expense (24,436) (13,053)

Net interest income 15,835 13,124

Average interest-earning assets 835,493 760,914

Net interest spread 1.47% 1.47%

Net interest margin 1.90% 1.72%

In 2006, net interest income increased by HK$2,711 million, or 20.7%, to HK$15,835 million. Average interest-earning assets

grew by HK$74,579 million, or 9.8%, to HK$835,493 million, due to the increase in deposits (including funds from IPO

subscription). Net interest margin increased by 18 basis points to 1.90% while net interest spread remained flat. Contribution

from net free fund rose by 18 basis points because of rising interest rates.

Market interest rates were higher in 2006 than in 2005. After the refinement of the operation of the linked exchange rate

mechanism by the HKSAR government in May 2005, one-month HIBOR mounted from 1.96% at end-April 2005 to 4.10% at

end-2005, culminating at 4.68% in May 2006. Starting from the second half of 2006, it dropped gradually, falling to 3.87%

in mid-August and then remaining relatively stable at the average of 4.05% in the fourth quarter. On the other hand, LIBOR

rates behaved quite differently – One-month LIBOR increased and peaked in August 2006 at 5.42% and remained relatively

flat till end-2006. Average one-month HIBOR increased by 118 basis points to 4.12% as compared to 2.94% a year ago

while average one-month LIBOR increased by 171 basis points to 5.10% during the same period. The Group’s average HKD

Prime rate rose to 8.03% in 2006, compared to 6.17% a year ago, thus widening the HKD Prime-to-one-month HIBOR spread

(hereinafter called “Prime-HIBOR spread”) by 68 basis points to 3.91%.

The increase in net interest income was mainly driven by the growth of interest-earning assets and contribution of net free

funds. For 2006, the Group’s average gross yield on loans and advances to customers increased by 157 basis points to 5.65%.

This was attributable to higher market interest rates and the increase in higher yielding loans such as credit cards receivable and

the lending business of Mainland branches. Although the weighted average yield on residential mortgage portfolio, excluding

Government Home Ownership Scheme (“GHOS”) mortgages, decreased by 12 basis points year on year to 2.56% from 2.44%

below HKD Prime rate, overall loan spread improved as a result of widening of Prime-HIBOR spread. The Group continued to

diversify its investment portfolio effectively. By increasing its investments in asset-backed securities, mortgage-backed securities

and corporate bonds, the Group raised its gross yield on debt securities by 126 basis points. However, improvement in net

contribution from the debt securities portfolio was held back by the flattening yield curve. Fixed deposit spread widened as

a result of the Group’s conscious effort in managing funding costs. On the other hand, higher deposit rates and the increase

in average fixed deposits led to higher overall funding cost. For instance, average interest rates on savings and fixed deposits

increased by 159 basis points and 119 basis points respectively.



The summary below shows the average balances and average interest rates of individual assets and liabilities:

ASSETS

Yearended31December2006Restated

Year ended 31 December 2005

Averagebalance Averageyield Average balance Average yield

HK$’m % HK$’m %

Loans to banks 177,465 3.90 166,224 2.38

Debt securities investments 302,349 4.60 251,424 3.34

Loans and advances to customers 333,901 5.65 323,359 4.08

Other interest-earning assets 21,778 2.63 19,907 3.21

Total interest-earning assets 835,493 4.82 760,914 3.44

Non interest-earning assets 80,407 – 70,875 –

Total assets 915,900 4.40 831,789 3.15

LIABILITIES

Yearended31December2006Restated

Year ended 31 December 2005

Averagebalance Averagerate Average balance Average rate

HK$’m % HK$’m %

Deposits and balances of banks and other financial institutions 44,859 2.99 33,865 2.21

Current, savings and fixed deposits 653,237 3.35 597,279 1.93

Certificate of deposits issued 3,484 3.22 3,800 2.94

Other interest-bearing liabilities 28,232 3.78 27,374 2.35

Total interest-bearing liabilities 729,812 3.35 662,318 1.97

Non interest-bearing deposits 32,807 – 33,911 –

Shareholders’ funds* and non interest-bearing liabilities 153,281 – 135,560 –

Total liabilities 915,900 2.67 831,789 1.57

* Shareholders’ funds represent capital and reserves attributable to the equity holders of the Company.


BOC Hong Kong (Holdings) Limited Summary Financial Report 2006 �0

Second Half PerformanceCompared to the first half of 2006, net interest income increased by HK$827 million, or 11.0 %, in the second half. Average

interest-earning assets grew by HK$3,266 million, or 0.4%. Net interest margin and net interest spread rose by 16 basis points

and 15 basis points respectively. Contribution from net free funds rose by 1 basis point.

Following a relatively steep rise in the first half of 2006, market interest rates became more stable in the second half. Because

of higher liquidity in the market, average one-month HIBOR declined in the second half by 15 basis points vis-à-vis the first

half of 2006. Meanwhile, average one-month LIBOR increased by only 49 basis points. Consequently, improvement in the

contribution of net free fund slowed down. The Group continued to benefit from diversification of debt securities holding

with gross yield on debt securities rose by 41 basis points. Moreover, as the Group’s higher yielding loans increased and Prime-

to-HIBOR spread widened, loan spread improved. Weighted average yield from the residential mortgage portfolio, excluding

GHOS mortgages, declined by 8 basis points to 2.60% below the HKD Prime rate. Total deposit spread widened as savings

rate decreased coupled with higher average market rates.

NetFeesandCommissionIncome

HK$’m 2006 2005

Bills commissions 537 532

Loan commissions 273 263

Investment and insurance fee income 1,851 1,139

Securities brokerage (Stockbroking) 1,383 714

Securities brokerage (Bonds) 105 120

Asset management 317 203

Life insurance 46 102

General insurance 96 103

Trust services 118 107

Payment services 418 381

Credit cards 807 737

Account services 304 298

Guarantees 44 43

Currency exchange 117 102

RMB business 77 43

Correspondent banking 31 19

IPO-related business 60 12

Others 252 227

Fees and commission income 4,985 4,006

Fees and commission expenses (1,268) (1,061)

Net fees and commission income 3,717 2,945

Net fees and commission income increased by HK$772 million, or 26.2%, to HK$3,717 million mainly due to the significant

increase in commissions from stock brokerage of HK$669 million or 93.7% and in asset management fee income of HK$114

million or 56.2%. The buoyant equity market and IPO activities helped boost stock transactions. With its newly launched

eIPO services and IPO promotion programmes, the Group grew its stock brokerage business volume substantially by 112%.

At the same time, the sales of open-end funds also rose by 90.0%. However, the sales of structured notes declined and the

income derived therefrom was down by HK$15 million or 12.5%. Moreover, as a result of the combination with BOC Life, fee

income from life insurance only included that from the Group’s other insurance business partner after group consolidation

elimination. It fell by HK$56 million, or 54.9%, mainly due to competition. Fees from card business recorded a growth of

9.5%, as cardholder spending and merchant acquisition volume increased by 13.7% and 22.5% respectively. Fees from trust

services and payment services grew by 10.3% and 9.7% respectively. Riding on the active IPO activities, the Group’s fees

income from IPO-related activities such as receiving banker’s fee and brokerage surged by HK$48 million or a fourfold growth.

Meanwhile, RMB-related services also rose by HK$34 million or 79.1%. Fees and commission expenses rose by HK$207 million

or 19.5% as the Group continued to expand its stock brokerage, credit card and RMB-related businesses. Moreover, additional

charges under the Deposit Protection Scheme that commenced in September 2006 also contributed to the increase in fees

and commission expenses.


Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited �1

Second Half Performance

Compared to the first half of 2006, net fees and commission income increased by HK$195 million, or 11.1%, in the second

half. The active Hong Kong stock market helped boost the Group’s fee income from stock brokerage by HK$95 million, or

14.8%. Fee income from bond sales surged by HK$47 million, or 162.1%, which was in line with the increase in the sales

volume of retail bonds. Loan commissions grew by HK$41 million, or 35.3%, due to higher business volume. Fees from card

business, trust services and bills commissions also increased by 15.2%, 18.5% and 7.3% respectively. Fees and commission

expenses in this period rose by HK$86 million, or 14.6%, mainly due to increase in stock brokerage, credit card expenses and

the additional charges under the Deposit Protection Scheme.

InvestmentandInsuranceBusiness

HK$’m 2006 2005

Investment and insurance fee income

Securities brokerage (Stockbroking) 1,383 714

Securities brokerage (Bonds) 105 120

Asset management 317 183

Life insurance 46 102

1,851 1,119

Insurance and investment income of BOC Life

Net insurance premium income 6,195 3,630

Interest income 473 318

Net trading income 420 (305)

Fee income – asset management – 20

Others 6 3

Gross insurance and investment income of BOC Life* 7,094 3,666

Less: net insurance benefits and claims (6,655) (3,362)

439 304

Total investment and insurance income 2,290 1,423

* Before commission expenses.

In 2006, total investment and insurance income surged by HK$867 million, or 60.9%, to HK$2,290 million, primarily due to

an increase in investment and insurance fee income of HK$732 million, or 65.4%, and the rise in BOC Life’s insurance and

investment income by HK$135 million, or 44.4%. The increase in BOC Life’s insurance and investment income was mainly

attributable to higher interest income from securities investments as a result of the significant growth of premium income and

an increase in net trading income, partly offset by a growth in net insurance benefits and claims.


Compared to the first half of 2006, total investment and insurance income increased by HK$156 million, or 14.6%, mainly

due to an increase in investment and insurance fee income of HK$135 million, or 15.7%. Insurance and investment income

of BOC Life grew by HK$21 million, or 10.0%.


BOC Hong Kong (Holdings) Limited Summary Financial Report 2006 ��

NetTradingIncome

HK$’m 2006 2005

Net trading income of the banking business

Foreign exchange and foreign exchange products 1,113 1,414

Interest rate instruments 204 277

Equity instruments 73 8

Commodities 78 52

1,468 1,751

Net trading income of BOC Life

Foreign exchange and foreign exchange products 1 –

Interest rate instruments 359 (317)

Equity instruments 60 12

Commodities – –

420 (305)

Total net trading income 1,888 1,446

Net trading income registered a gain of HK$1,888 million in 2006, of which HK$1,468 million was derived from the Group’s

banking business and HK$420 million came from BOC Life. The net trading income of the banking business decreased by

HK$283 million, or 16.2%, mainly because of the decline in net trading income from foreign exchange and foreign exchange

related products of HK$301 million, or 21.3%. The decline was caused by the decrease in net trading income from foreign

exchange swap contracts. Net trading income from interest rate instruments also dropped by HK$73 million due to the decline

in the fair value of the Group’s interest rate swap contracts, which was partly offset by the increase in net trading income

from equity instruments and commodities. Net trading income of BOC Life was up by HK$725 million, compared to a net loss

of HK$305 million in 2005. The rise in net trading income was mainly driven by an increase of HK$676 million in net trading

income from interest rate instruments and an increase of HK$48 million in net trading income from equity instruments. Net

trading income from interest rate instruments posted a net gain of HK$359 million, versus a net loss of HK$317 million in

2005. This gain was mainly attributable to the favourable changes in the fair value of securities investments and the structured

notes held by BOC Life.


Compared to the first half of 2006, net trading income rose by HK$490 million or 70.1% in the second half mainly due to an

increase in the fair value of the securities investments and structured notes held by BOC Life. The increase was partly offset

by the decline in net trading income from foreign exchange swap contracts and the decrease in the fair value of interest rate

swap contracts of the banking business.

NetInsurancePremiumIncome

HK$’m 2006 2005

Life and Annuity 5,855 3,216

Linked Long Term 348 419

Retirement Scheme – 1

6,203 3,636

Reinsurers’ share of gross earned premiums (8) (6)


Compared to 2005, net insurance premium income registered a solid growth of HK$2,565 million, or 70.7%, to HK$6,195

million. This growth was driven by the 58.5% growth in the number of new insurance policies concluded. The strong growth

of premium income was the result of satisfactory sales of new life insurance products introduced during the year.


Compared to the first half of 2006, net insurance premium income decreased by HK$757 million or 21.8% to HK$2,719

million. The decline was mainly due to comparatively lower sales of policies after a strong first half.


Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited ��

NetInsuranceBenefitsandClaims

HK$’m 2006 2005

Life and Annuity 6,309 2,965

Linked Long Term 344 397

Retirement Scheme 3 1

6,656 3,363

Reinsurers’ share of claims, benefits and surrenders paid and movement in liabilities (1) (1)

Net insurance benefits and claims 6,655 3,362

Compared to 2005, net insurance benefits and claims increased by HK$3,293 million or 97.9% to HK$6,655 million mainly

due to growth of the life and annuity insurance underwriting business. Prospective liabilities were recognised on the basis of

the assumptions made as to mortality, investment income and fair value changes in the underlying investments.


Compared to the first half of 2006, net insurance benefits and claims increased by HK$535 million or 17.5% to HK$3,595

million in the second half, mainly due to increase in new business.

OperatingExpenses

HK$’m, except percentage amounts 2006 2005

Staff costs 4,004 3,493

Premises and equipment expenses (excluding depreciation) 868 740

Depreciation on owned fixed assets 671 568

Other operating expenses 1,015 970

Operating expenses 6,558 5,771

Cost to income ratio 30.78% 31.75%

In line with overall business expansion, the Group’s operating expenses increased by HK$787 million, or 13.6%, to HK$6,558

million. Staff costs rose by HK$511 million or 14.6% following the pay rise in April 2006 and the recruitment of new staff

needed by the Group. Compared to end-2005, headcount measured in full-time equivalents rose by 65 from 12,933 to 12,998

at end-2006.

Premises and equipment expenses increased by HK$128 million or 17.3% primarily due to higher rental and IT costs

incurred.

Depreciation on owned fixed assets rose by HK$103 million, or 18.1%, to HK$671 million in 2006 largely due to appreciation

of the value of bank premises.


Compared to the first half of 2006, operating expenses rose by HK$616 million or 20.7%. This was basically in line with the

normal seasonal trend, in particular, salary adjustments began from the second quarter of each year.



ReversalofLoanImpairmentAllowancesonAdvances

HK$’m 2006 2005

Reversal of/(Charge for) loan impairment allowances

Individual assessment

– new allowances (647) (1,304)

– releases 313 1,042

– recoveries 2,053 1,639

Collective assessment

– new allowances (194) (11)

– releases 203 1,279

– recoveries 62 –

Net credit to Income Statement 1,790 2,645

The Group recorded a net release of loan impairment allowances of HK$1,790 million in 2006, primarily due to loan recoveries.

Compared to 2005, net release of loan impairment allowance was down HK$855 million or 32.3%, mainly caused by a decline

in release of allowances.

Net impairment charge on individual assessment increased by HK$72 million due to lower release of allowances. The significant

release in 2005 was mainly attributable to the recovery of a large account. Additional allowances amounting to HK$647

million, which were HK$657 million lower than those for 2005, were needed to cover the formation of new impaired loans#

and further deterioration of existing impaired accounts.

Net release of collective impairment allowances declined substantially by HK$1,259 million. The reduction reflected a natural

slowdown in the improvement in the bad debt migration rate after the Group’s significant improvement in asset quality last

year on the back of improved economic conditions and borrowers’ debt servicing capability.

The Group made remarkable progress in the recovery of loans that were previously written off. Total recoveries (individually and

collectively assessed) were HK$2,115 million, up HK$476 million, mainly due to the recoveries of certain large accounts.


Compared to the first half of 2006, net release of loan impairment allowances was up by HK$506 million in the second half.

It was mainly attributable to the recoveries of certain large accounts, which were partially offset by lower release of collective

impairment allowances in the second half of the year.

# Impaired loans are advances where objective evidence exists that full repayment of principal or interest is considered unlikely.



With low classified loan formation and strong collection

efforts, classified loans* were reduced by HK$2,275 million,

or 53.4%, in 2006. Classified loan ratio fell from 1.28% in

2005 to a record low of 0.57% at end-2006. At the same

time, impaired loan ratio improved from 0.56% to 0.26% at

end-2006.

Over the past five years, the Group has shown substantial

improvement in asset quality. Classified loans were reduced

at a compound annual rate of 47%. Classified loan ratio

dropped substantially from 7.98% at end-2002 to 0.57% at

end-2006.

* Classified loans represent advances which have been classified as “substandard”, “doubtful” and “loss” under the Group’s classification of loan quality.

PropertyRevaluation

HK$’m 2006 2005

Net (loss)/gain on revaluation of premises (1) 63

Net gain on fair value adjustments on investment properties 574 1,386

Deferred tax (55) (339)

Net gain on fair value adjustments on investment properties, after tax 519 1,047

The aggregate impact of property revaluation before tax on the income statement was HK$573 million, of which HK$574 million

came from the revaluation of investment properties and HK$1 million from loss on revaluation of bank premises. The related

deferred tax charge on revaluation of investment properties amounted to HK$55 million. As a result, the net impact of fair

value adjustments on investment properties on the Group’s attributable profit in 2006 was HK$519 million. When compared

to 2005, the decrease in net gain on property revaluation was in line with the stabilising property prices.


Compared to the first half of 2006, net gain from revaluation of investment properties fell by HK$391 million in the second

half, which was in line with the movement of local property prices.

Classifiedloanratio

10

8

6

4

2

002 03 04 05 06

1.28%0.57%

2.95%

5.82%

7.98%

Year

%



FinancialPosition

HK$’m, except percentage amountsAt31December

2006

RestatedAt 31 December

2005

Cash and balances with banks and other financial institutions 30,973 30,704

Placements with banks and other financial institutions 130,636 125,862

Hong Kong SAR Government certificates of indebtedness 34,750 32,630

Securities investments* 330,385 264,209

Advances and other accounts 352,858 338,403

Fixed assets and investment properties 27,221 26,117

Other assets ** 22,130 13,077

Total assets 928,953 831,002

Hong Kong SAR currency notes in circulation 34,750 32,630

Deposits and balances of banks and other financial institutions 49,034 40,655

Deposits from customers 694,691 632,658

Certificates of deposit issued 2,498 3,965

Insurance contract liabilities 14,239 7,968

Other accounts and provisions 47,101 31,413

Total liabilities 842,313 749,289

Minority interests 1,985 1,778

Capital and reserves attributable to the equity holders of the Company 84,655 79,935

Total liabilities and equity 928,953 831,002

Loan-to-deposit ratio 49.32% 52.27%

* Securities investments comprise investment in securities, trading securities and other financial instruments at fair value through profit or loss.** Investments in associates and derivative financial instruments are included in other assets.

BalanceSheetMixasat31December2006 BalanceSheetMixasat31December2005

HK$‘m/(%)

45,707 (5%)

26,117 (3%)

338,403 (41%)

30,704 (4%)

125,862 (15%)

264,209 (32%)

Cash and balances with banks and other financial institutions

Placements with banks and other financial institutions

Securities investments

Advances and other accounts

Fixed assets & investment properties

Other assets

HK$‘m/(%)

56,880 (6%)

27,221 (3%)

352,858 (38%)

30,973 (3%)

130,636 (14%)

330,385 (36%)



The Group’s total assets were HK$928,953 million as at 31 December 2006, up HK$97,951 million or 11.8% from the end

of 2005:

• Cash and balances with banks and other financial institutions increased by HK$269 million or 0.9%, while interbank

placements increased by HK$4,774 million or 3.8%.

• Securities investments rose by HK$66,176 million, or 25.0%, to HK$330,385 million as the Group increased its

investments in asset-backed securities, mortgage-backed securities and selected corporate bonds in order to increase

income contribution from securities investments.

• The Group continued to actively manage the balance sheet. As a result, the proportion of short-term surplus funds to

total assets decreased while the proportion of securities investment portfolio increased.

AdvancestoCustomers

At31December At 31 December

HK$’m, except percentage amounts 2006 % 2005 %

Loans for use in Hong Kong 274,290 79.0 274,002 82.0

Industrial, commercial and financial 148,780 42.9 146,100 43.7

Individual 125,510 36.1 127,902 38.3

Trade finance 16,865 4.9 16,079 4.8

Loans for use outside Hong Kong 55,935 16.1 43,942 13.2

Total advances to customers 347,090 100.0 334,023 100.0

Total advances to customers grew by HK$13,067 million or 3.9%, which was mainly attributable to the growth in loans for use

outside Hong Kong and corporate loans in Hong Kong. The growth was partly offset by the decline in residential mortgage

loan as a result of intensified competition and market sluggishness.

Loans for use in Hong Kong increased slightly by 0.1%:

• Lending to the industrial, commercial and financial sectors rose by HK$2,680 million, or 1.8%, driven by loans for

property investment and transport and transport equipment.

• Residential mortgage loans (excluding those under GHOS) decreased by HK$2,218 million, or 2.2%, to HK$96,953

million due to keen market competition particularly in the first half of the year.

• Card advances grew by HK$822 million, or 17.6%, to HK$5,490 million as a result of an increase in cardholder

spending.

• Other consumer lending rose by HK$751 million, or 9.3%, to HK$8,831 million.

Trade finance increased by HK$786 million, or 4.9%, on the back of robust merchandise exports and strong local demand.

Meanwhile, loans for use outside Hong Kong grew significantly by HK$11,993 million or 27.3%. The increase was mainly

driven by overseas lending and loan growth of the Group’s Mainland branches.


When compared to the first half of the year, total loans recorded a broad-based rebound in the second half. Strong growth

momentum was shown in both individual and corporate loans. The Group’s new pricing strategy on mortgage products was

well received. Residential mortgages increased by HK$2,511 million, or 2.7%, recovering much of the fall in the first half of

the year. Corporate loans in Hong Kong increased by HK$1,536 million, or 1.0%, while trade finance rose by HK$1,057 million,

or 6.7%. Loan for use outside Hong Kong grew significantly by HK$8,047 million, or 16.8%, of which lending through the

Group’s Mainland branches surged by HK$3,430 million or 22.6%.



In terms of currency mix, HKD and USD advances to customers accounted for 82.5% and 14.1% respectively at the end of

2006. Other currency advances to customers accounted for 3.4%. There was no significant change in currency mix in 2006.

DepositsfromCustomers


2006 %At 31 December

2005 %

Demand deposits and current accounts 30,979 4.4 28,948 4.5

Savings deposits 256,653 36.5 216,540 33.9

Time, call and notice deposits 407,059 57.8 387,170 60.6

Total deposits from customers 694,691 98.7 632,658 99.0

Structured deposits 9,085 1.3 6,373 1.0

Adjusted total deposits from customers 703,776 100.0 639,031 100.0

Total deposits from customers increased by HK$62,033 million, or 9.8%, to HK$694,691 million in 2006. Given the buoyant

stock market, customers were more inclined to maintain a higher degree of liquidity. As a result, savings deposits increased

considerably by 18.5% or HK$40,113 million. Time, call and notice deposits rose by 5.1% or HK$19,889 million while demand

deposits and current accounts increased by 7.0% or HK$2,031 million. The Group’s deposits mix improved with the proportion

of lower cost deposits, which consists of current accounts and savings deposits, to total deposits rising from 38.4% at end-

2005 to 40.9% at end-2006. There was a growing demand for structured deposits - a hybrid of retail deposit and derivatives

offering a higher nominal interest rate to depositors. Structured deposits grew to HK$9,085 million, up HK$2,712 million

or 42.6%, representing about 1.3% of the adjusted total deposits from customers. The Group’s loan-to-deposit ratio was

49.32% at end-2006.


Compared to end-June 2006, total deposits from customers rose by HK$53,800 million, or 8.4%, in the second half. Savings

deposits increased by HK$32,685 million, or 14.6%. Time, call and notice deposits grew by HK$18,571 million, or 4.8% while

demand deposits and current accounts increased by HK$2,544 million or 8.9%.

Totaladvancestocustomersbycurrencymix(%)

3%

13%

84%

3%

14%

HKD USD Others

2006.12.31 2005.12.31

83%



In terms of currency mix, HKD and USD deposits accounted for 69.8% and 20.9% respectively at the end of 2006. Other

currency deposits accounted for 9.3%. The Group’s HKD loan-to-deposit ratio was 58.3%, down from 65.0% at end-2005,

mainly due to a higher increase in HKD deposits from customers relative to HKD advances to customers.

AssetQuality


2006At 31 December

2005

Advances to customers 347,090 334,023

Classified loan ratio& 0.57% 1.28%

Impairment allowances 1,103 1,714

Regulatory reserve for general banking risks 3,621 3,526

Total allowances and regulatory reserve 4,724 5,240

Total allowances as a percentage of advances to customers 0.32% 0.51%

Total allowances and regulatory reserve as a percentage of advances to

customers 1.36% 1.57%

Impairment allowances on classified loan ratio## 28.62% 29.77%

Total coverage (including collateral values)## 106.74% 99.88%

Residential mortgage loans* – delinquency and rescheduled loan ratio** 0.21% 0.30%

Card advances – delinquency ratio**# 0.25% 0.32%

2006 2005

Card advances – charge-off ratio# 2.44% 2.67%

& Classified loans represent advances which have been classified as “substandard”, “doubtful” and “loss” under the Group’s classification of loan quality. Repossessed assets are initially recognised at the lower of their fair value or the amortised cost of the related outstanding loans on the date of repossession. The related loans and advances are deducted from loans and advances.

* Residential mortgage loans exclude those under the Home Ownership Scheme and other government-sponsored home purchasing schemes.

** Delinquency ratio is measured by a ratio of total amount of overdue loans (more than three months) to total outstanding loans.

# Excluding Great Wall cards and computed according to the HKMA’s definition.

## Only including impairment allowances on loans classified as “substandard”, “doubtful” and “loss” under the Group’s classification of loan quality.

Adjustedtotaldepositsfromcustomersbycurrencymix(%)

12%

21%67%

9%

21%

HKD USD Others

70%

2006.12.31 2005.12.31



MovementofClassifiedAdvancestoCustomers

In HK$ bln 2006 2005

Beginning balance 4.3 9.2

New classified loans 0.9 1.7

Upgraded classified loans (0.3) (1.2)

Collection (2.0) (3.8)

Write-off (0.8) (1.1)

Others (0.1) (0.5)

Ending balance 2.0 4.3

Owing to better credit quality as well as strong collection and write-off, the Group’s asset quality continued to improve with

the classified loan ratio falling to the historical low of 0.57%, versus 1.28% at end-2005. Classified loans decreased by

approximately HK$2.3 billion or 53% to HK$2.0 billion. New classified loans were maintained at a low level, representing less

than 0.3% of total loans outstanding. Total collections amounted to approximately HK$2.0 billion. Write-off of classified loans

amounted to HK$0.8 billion. About HK$0.1 billion of the reduction in classified loans was due to the treatment of repossessed

assets as a direct offset against the classified loans outstanding.

Total impairment allowances, including both IA and CA, amounted to HK$1,103 million. Impairment allowances on classified

loan ratio was 28.62%. If the value of underlying collateral was included, the total coverage ratio would increase to 106.74%.

The Group’s regulatory reserve rose by HK$95 million to HK$3,621 million as advances to customers increased.

The quality of the Group’s residential mortgage loans continued to improve. The combined delinquency and rescheduled loan

ratio decreased from 0.30% at end-2005 to 0.21% at end-2006. The quality of card advances also improved, with the charge-

off ratio dropping from 2.67% to 2.44% year-on-year.

CapitalandLiquidityRatios

HK$’m, except percentage amounts

At31December

2006

At 31 December

2005Tier 1 capital 68,458 64,213Tier 2 capital 4,060 3,991Unconsolidated investment and other deductions (971) (1,004)

Total capital base after deductions 71,547 67,200

Risk-weighted assetsOn-balance sheet 479,082 412,851Off-balance sheet 39,968 30,713Deductions (7,741) (6,450)Total risk-weighted assets 511,309 437,114Total risk-weighted assets adjusted for market risk 513,707 438,213

Capital adequacy ratios (banking group level)Before adjusting for market riskTier 1 13.39% 14.69%Total 13.99% 15.37%

After Adjusting for market riskTier 1* 13.33% 14.65%Total* 13.93% 15.33%

Full-yearended

31December

2006

Full-year ended

31 December

2005

Average liquidity ratio 50.46% 42.02%

* Capital adequacy ratios take into account market risks and are calculated in accordance with the relevant HKMA guidelines.



Total capital base of the Group after deduction increased by 6.5% to HK$71,547 million, implying an increase in retained

earnings. Despite this, the consolidated capital adequacy ratio of the banking group fell to 13.99% from 15.37% at end-2005

because of a 17.0% increase in total risk-weighted assets. This was the result of the growth of securities investment.

Average liquidity ratio rose to 50.46%, compared to 42.02% in 2005. The Group continued to actively manage its balance

sheet. Investments in liquefiable securities was increased, which helped strengthen its liquidity position.

BUSINESSREVIEw

This section covers the review of the Group’s business lines together with their respective financial results.

RETAILBANKING


Full-yearended

31December

2006

Full-year ended

31 December

2005

Increase/

(decrease)

Net interest income 7,851 7,326 +7.2%

Other operating income 3,534 2,632 +34.3%

Operating income 11,385 9,958 +14.3%

Operating expenses (5,033) (4,514) +11.5%

Operating profit before loan impairment allowances 6,352 5,444 +16.7%

Net release of/(charge for) loan impairment allowances (27) 956 N/A

Others (18) (12) +50.0%

Profit before taxation 6,307 6,388 -1.3%

At31December

2006

At 31 December

2005

Increase/

(decrease)

Segment assets 169,595 158,844 +6.8%

Segment liabilities 578,249 554,244 +4.3%

Note: For additional segmental information, see Note 10 to the Financial Statements.

Results

Retail Banking registered healthy business growth in 2006. Operating income grew by 14.3% year-on-year to HK$11,385

million. The growth was driven by the increase of both net interest income and other operating income. Operating profit

before loan impairment allowances increased by HK$908 million or 16.7% to HK$6,352 million. Profit before taxation was

HK$6,307 million, down HK$81 million or 1.3% from 2005 because of the relatively high release of impairment allowances

recorded in 2005.

Net interest income rose by 7.2% to HK$7,851 million. The overall profitability of Prime-based loans, which formed the bulk

of Retail Banking’s loan assets, improved due to widened Prime-HIBOR spread. The improvement in loan spread was held back

by narrowed deposit spread as increase in savings rates outpaced the increase in market rates.

Other operating income soared by 34.3% to HK$3,534 million because of the strong growth of net fees and commission

income by 38.8%. The buoyant equity market and IPO activities spurred the growth of the transaction volume of the Group’s

stock brokerage business, thereby increasing the commissions from securities trading. This, coupled with the growth of

commissions from the sales of open-end investment funds, more than offset the decline in commissions from the sales of

structured notes.

Operating expenses rose by 11.5% to HK$5,033 million mainly because of the rise in staff costs after pay rise and the

recruitment of new staff to support business expansion.



Retail Banking’s net charge for loan impairment allowances for 2006 amounted to HK$27 million, versus net releases of

HK$956 million in 2005. The net charge for loan impairment allowances reflected a slowdown in the improvement in bad

debt migration and additional allowances for increased credit card advances.

Advances and other accounts, including mortgage loans and card advances, increased by 0.7% to HK$130,124 million.

Customer deposits increased by 3.0% to HK$549,982 million.

Stronggrowthofinvestmentandinsurancebusiness

Investment and insurance, both being the Group’s business focuses, delivered encouraging results in 2006. Capitalising on

bullish stock trading and its enhanced trading platform, the Group grew its stock brokerage business volume substantially

by 112%. At the same time, with improved sales productivity and a broadened product range, the Group recorded a 90.0%

growth in the sales volume of open-end funds. The China and Emerging Market Equity Funds were some of the best-sellers.

Taking advantage of the IPO boom, the Group launched eIPO financing services while aggressively promoting its IPO-related

business. The Group became the major receiving bank for most of the large-scale IPOs in Hong Kong. The number of IPO

subscriptions received and processed by the Group reached a record high in 2006. Over 50% of the subscriptions were

submitted through the automated channel.

Through effective marketing campaigns and personalised services, the Group grew its number of wealth management customers

and assets under management by 45.9% and 42.9% respectively.

To expand its life insurance business, the Group launched a diverse range of new products in 2006, including the “Supreme

Saver 06- 5 Year Life Endowment Plan”, “Prudent Saver 5-year Life Endowment Plan”, “Companion Insurance Plan” and “Total

Value Retirement Solution Plan”. These products were well received by customers. “Total Value Retirement Solution Plan” was

the first kind of investment-linked annuities in the banking market.

Growthmomentumofresidentialmortgagesregained

Intense competition and a relatively lacklustre residential mortgage sector had an adverse impact on the Group’s residential

mortgages in the first half of the year. The Group adjusted its promotion strategies and introduced flexible mortgage products

such as “Fixed rate mortgage plan”, “HIBOR-based mortgage plan”, “All-you-want” and “Smart” mortgage schemes to satisfy

customers’ diverse finance needs. New residential mortgages grew substantially by 97% in the second half of the year and

the Group regained its leading position in the market. Meanwhile, the credit quality of residential mortgages continued to

improve as the delinquency and rescheduled loan ratio dropped further to 0.21%.

Inpursuitofhighnetworthcustomersthroughprofessionalpremiumservices

The Group continued with its effort to win and better serve high net worth customers in 2006. In collaboration with BOC, in

December 2005 the Group launched a new service enabling wealth management customers to access priority and privileged

banking services at BOC branches in the whole Asia Pacific region. In addition, value-added banking solutions covering

investment management, financial planning and pre-arranged banking services were tailored for Mainland customers. During

the year, the BOCHK Wealth Management Expo was held and various large scale and localised investment seminars were

organised regularly to update customers on the latest investment climate.

“Wealth MaxiWiser”, a financial planning tool, was further enhanced to strengthen portfolio management advisory services,

achieve effective customer management and maximise customers’ wealth. Currently, 100 Wealth Management Prime centres

and 20 Wealth Management VIP centres are in operation to provide tailor-made financial solutions to customers.

Expansionofcreditcardbusiness

The Group’s card business continued to expand in terms of customer base and service range. Card advances increased by

17.6% and the number of cards issued grew by 4.1%. Cardholder spending volume and merchant acquiring volume expanded

by 13.7% and 22.5% respectively.



The Group launched “VISA BOC Olympic Games Card” in 2006. With a strong competitive edge in the credit card market, the Group continued to extend appealing merchant offer programmes to customers through a comprehensive merchant network covering Hong Kong, Macau and the Mainland. In the area of merchant acquiring, the Group launched the Dynamic Currency Conversion Service to support real-time currency conversion value-added services to both merchants and credit cardholders.

The Group was the first EMV certificate acquirer in Hong Kong, and had the widest coverage of EMV standard chip-enabled terminals in the local market at end-2006.

The Group’s performance and service quality in credit card business were recognised by the industry. During the year, the Group won a total of 22 awards from MasterCard International, Visa International, China UnionPay, Hong Kong Trade Development Council (“HKTDC”) and International Licensing Industry Merchandisers’ Association (“LIMA”) respectively.

LeadingHongKong’sRMBbankingbusinessThe Group continued to be the local market leader in Renminbi (“RMB”) banking business with a comprehensive range of relevant services. By end-2006, RMB deposits increased by 1.8% from a year ago. The Group also maintained its leading position in the RMB credit card issuing and merchant acquiring business. RMB merchant acquiring volume and RMB card cardholder spending volume registered strong growths of 91.9% and 46.9% respectively. The number of RMB credit cards issued grew by 22.7%. During the year, the Group upgraded the features of its RMB card. Customers can choose their own account withdrawal limit for security purpose and make use of the RMB POS functions in the Mainland to suit their diverse financial needs. At end-2006, the number of ATMs providing RMB withdrawal service reached 230.

In March 2006, the Group launched Renminbi Settlement System (“RSS”) to provide clearing services for expanded RMB business in Hong Kong. RSS serves as a quality clearing platform and provides a solid foundation for the further expansion of RMB business. At the same time, Personal RMB Cheque Service was launched to enable customers to make payment in Guangdong Province by cheque.

Branchrationalisationande-ChannelDevelopmentThe Group continued to optimise its branch network in 2006. During the year, the Group opened 3 new branches, renovated 54 existing branches and revamped 14 wealth management centres. By the end of 2006, the number of branches in Hong Kong was 287 and the number of ATM machines was 445.

To offer more convenient and reliable e-service to customers, the Group upgraded its internet banking services. Apart from enhanced investment functions and new e-banking products, the Group’s website was revamped to strengthen online sales and promotion. Over the year, the number of e-banking customers and transactions increased by 15.2% and 62.6% respectively.

CORPORATEBANKING


Full-yearended

31December

2006

Full-year ended

31 December

2005

Increase/

(decrease)




Operating expenses (1,500) (1,293) +16.0%

Operating profit before loan impairment allowances 3,990 3,596 +11.0%

Net release of loan impairment allowances 1,817 1,689 +7.6%

Others (3) (1) +200.0%

Profit before taxation 5,804 5,284 +9.8%

At31December

2006

At 31 December

2005

Increase/

(decrease)

Segment assets 222,701 211,834 +5.1%





Results

Corporate Banking reported a profit before taxation of HK$5,804 million in 2006, up HK$520 million or 9.8% as compared

to 2005. Operating profit before loan impairment allowances increased by 11.0% to HK$3,990 million. Net interest income

and other operating income grew by 13.4% and 8.6% respectively, while the release of loan impairment allowances grew

by 7.6%.

The rise in net interest income was driven by the widened loan spread and deposit spread while the growth of other operating

income was due to increased net fees and commission income from loans and remittance. Operating expenses were up 16.0%

to HK$1,500 million on account of the rise in staff costs.

Net loan impairment releases were HK$1,817 million, up 7.6%, mainly due to recoveries of certain large accounts.

Advances and other accounts increased by 6.5% to HK$221,552 million. Customer deposits registered a robust growth of

46.6% to HK$145,781 million.

Leadinginloansyndication

The Group maintained its leading position in the syndication loan market covering Hong Kong, Macau and the Mainland.

According to Basis Point, a leading Asian capital market magazine, the Group was the number one mandated arranger in the

Mainland-Hong Kong-Macau syndicated loan market in 2006.

PhenomenalgrowthofIPOfinancing

Riding on the active stock market, the Group expanded its IPO financing business significantly. It provided more than HK$200

billion worth of financing to corporate and retail customers in connection with the IPO of 28 companies in Hong Kong. The

Group’s IPO financing business in 2006 recorded a tenfold growth versus 2005.

ExpandingSMElendingandcustomerbase

In 2006, the Group focused on adjusting its business and customer structures and devoted much effort in developing its SME

business. The Group’s 5-year SME business plan focuses on the enhancement of the SME business model, optimising credit

approval procedures for SME loans, streamlining the existing workflow, and raising the efficiency of customer service. These

growth initiatives were beginning to bear fruit as evidenced by the double-digit growth in SME loans. To better serve these

customers, the Group successfully launched and refined several products, including Equipment Link, Professional Firms Link,

and Trade Peak Season Link.

Reinforcingcashmanagementbusinessande-bankingplatform

With a view to growing its cash management business, the Group actively reinforced its service platform and coverage, its

connection with BOC’s overseas branches, and the service plans for large corporations. At the same time, BOC Wealth Master,

a standardised cash management product, was launched to better serve SME customers by providing a one-stop, multi-channel

and multi-account platform for them to do their financial management more efficiently. During the year, a Cash Management

Services Centre was established to enhance the Group’s competitiveness in the cash management business.

The Group continued to strengthen its e-banking functions and promote CBS Online services. The number of CBS Online

customers increased significantly. By end-2006, the number of CBS Online customers increased by 98% from a year ago.

Growingandstrengtheningtradefinancebusiness

To achieve greater flexibility and to optimise credit limit utilisation, the Group refined the trade finance credit limit structure

and simplified the procedure for arranging and using trade finance credit limits. The Group also launched several new trade

finance products and promotion plans, including Pre-shipment Financing, Bill Service and Trade Finance Promotion Scheme.

As a result of these initiatives, bills and settlement volume increased by 16.5% in 2006.



Optimisingbusinessmodel

In 2006, the Group refined its business model, organisation structure, management process and business workflow for

Corporate Banking to align with the Relationship-Product-Channel (“RPC”) Model. For instance, steps were taken to review and

enhance the business authorisation system, implement the Two-step Credit Approval Scheme, and simplify the credit renewal

and review procedures. The Group also implemented the Enhanced Relationship Manager Mechanism and Product Manager

Mechanism to strengthen the relationship and product professional teams. Under this refined business model, the Group is in

a better position to manage its customer relations and product development by taking into consideration individual clients’

industry, geographical location and sectoral characteristics and developing tailor-made products to suit their specific needs.

GrowingMainlandbusinesssteadily

The Group’s Mainland branches regained its growth momentum and delivered strong results in 2006, notwithstanding a

relatively slow first half. Profit before loan impairment allowances increased by HK$64 million, or 20.6% due mainly to the

increase in advances to customers. Total advances to customers rose by 22.7% to HK$18.6 billion. Customer deposits increased

by 67.4% to HK$3.9 billion. Asset quality continued to improve with the classified loan ratio falling by 0.34 percentage point

to 0.23%.

The business scope of the Group’s Mainland branches and sub-branches expanded further during the year. By the end of

2006, the Group had a total of 11 Mainland branches and sub-branches permitted to participate in RMB business. The

Qingdao branch submitted its application for running RMB business. All the 14 branches and sub-branches are now licensed

to conduct derivatives business and provide insurance agency services. The coverage of the Group’s wealth management

products was extended to the Mainland in 2006. In view of the high demand for investment products, the Group launched

commodity-linked deposits in 2006 as an extension of the currency-linked deposits offered since 2005. After the approval by

China Banking Regulatory Commission to conduct QDII business in October, the Group applied for the RMB exchange limit

of foreign exchange trade with State Administration of Foreign Exchange. In November, following the announcement by the

Commission of the new Regulations on Administration of Foreign-funded Banks, the Group resolved to incorporate the local

operation of the Group’s wholly-owned subsidiary, Nanyang Commercial Bank, in the Mainland to offer comprehensive banking

services with the focus on retail banking whereas BOCHK would maintain its foreign-funded bank status to concentrate on

corporate and foreign exchange businesses.

TREASURY


Full-yearended

31December

2006

Full-year ended

31 December

2005

Increase/

(decrease)


Other operating income 743 1,021 -27.2%


Operating expenses (458) (308) +48.7%

Operating profit 4,571 3,141 +45.5%

Others (2) – N/A

Profit before taxation 4,569 3,141 +45.5%

At31December

2006

At 31 December

2005

Increase/

(decrease)

Segment assets 497,155 426,791 +16.5%





Results

In 2006, Treasury reported remarkable growth in profit before taxation by HK$1,428 million, or 45.5%, as net interest income

rose sharply. Other operating income decreased by HK$278 million or 27.2%. Operating expenses increased by HK$150 million

or 48.7% to HK$458 million.

Net interest income increased substantially by HK$1,858 million or 76.5%. The increase was mainly driven by higher contribution

of net free fund due to the rise in market rates and better return on debt securities portfolio as a result of the Group’s effective

balance sheet management.

Other operating income decreased by HK$278 million or 27.2%, resulting from a reduction of net trading income of foreign

exchange swap contracts for funding purpose.

EnhancingyieldbydiversifyinginvestmentportfolioandvastlyexpandingIPObusiness

In 2006, Treasury’s structure and portfolio management strategy were refined to focus more on balance sheet management

and structural risk management. In order to improve return, three specialised portfolio management teams on interest rate,

credit and securitised products were set up respectively to provide professional analysis and information on different markets

and products. During the year, the Group actively managed its investment portfolio by diversifying into mortgage-backed

securities, covered bonds and corporate bonds to maximise the return on residual funds. This diversification also helped create

a more balanced portfolio and reduce concentration risks. As a result of these initiatives, investment return exceeded the

Group’s target despite the flattening yield curve. Moreover, as a receiving bank for 23 IPOs in Hong Kong in 2006, the Group

handled a total amount of IPO funds of over HK$1,000 billion – a record high.

EnhancingproductofferingsandmarketinginHongKongandMainland

In 2006, market volatility in interest rates, foreign exchange, and commodity and equity trading meant more opportunities

for the development of treasury products. In view of the growing popularity of structured investment products, the Group

introduced a series of structured deposits linked with interest rates, foreign exchange rates and bullion prices. During the year,

the Group launched a large number of structured deposits in Hong Kong and the Mainland respectively. To further enhance

cross-selling activities with retail and corporate customers, a special treasury marketing unit providing customised services

to local and Mainland customers was set up in late 2005. The team also provided training and consulting support to other

marketing teams. This not only enhanced the marketing capability of different business units for treasury products, but also

helped broaden the Group’s treasury client base. In 2006, the number of treasury customers increased by 42.3%.

INSURANCE


Full-yearended

31December

2006

Full-year ended

31 December

2005

Increase/

(decrease)

Net interest income 473 318 +48.7%



Net insurance benefits and claims (6,655) (3,362) +97.9%

Net operating income 239 186 +28.5%

Operating expenses (65) (56) +16.1%

Operating profit 174 130 +33.8%

Others – 12 N/A

Profit before taxation 174 142 +22.5%

At31December

2006

At 31 December

2005

Increase/

(decrease)

Segment assets 15,804 9,343 +69.2%





Results

The Group’s Insurance segment recorded a profit before taxation of HK$174 million, up HK$32 million or 22.5% as compared

to 2005. This was mainly driven by an increase in net interest income.

Net interest income rose by 48.7% to HK$473 million. This was mainly attributable to an increase in the investments of debt

securities on the back of significant growth of premium income arising from the successful launch of several new insurance

products. Other operating income rose by 98.8% to HK$6,421 million with the growth of premium income and an increase

in the fair value of interest rate instruments and structured notes. In line with the growth of premium income, net insurance

benefits and claims increased by 97.9% to HK$6,655 million.

Assets in the Insurance segment grew by 69.2% because of the increase in investments of interest rate instruments and

structured notes. Liabilities rose by 75.1%, which was mainly the result of increased insurance contract liabilities.

SuccessfulacquisitionofcontrollingstakeinBOCLife

The Group acquired from its parent the BOC Group a 51% controlling stake in BOC Life in June 2006. Life insurance policies,

investment products linked with life insurance policies and retirement scheme management plans are offered through the

Group’s extensive distribution network. This will help the Group to enhance its wealth management platform, solidify its client

base and increase its non-interest income.

Broadeningproductrangeandsteppingupsalestraining

Following the combination with BOC Life, the Group started offering a more diversified range of insurance products to meet

customers’ needs. In 2006, a series of new insurance products were introduced and customers’ response was very encouraging.

Premium from new business increased by 77% in 2006. To equip frontline staff with deeper professional knowledge and better

sales techniques, the Group established an in-house academy, the BOCG Life Bancassurance Academy, to provide systematic

professional training to the Group’s sales staff. Such training would focus on selling long-term insurance products. By end-

2006, more than 110 of the Group’s employees had participated in the training.

BuildingupBOCLifeasabrand

To strengthen BOC Life’s branding in Hong Kong, the Group organised a series of large-scale promotional activities under the

theme “BOC(HK) Insurance, We Care More”. A series of promotional campaigns were also launched to support this branding

exercise.

IMPLEMENTATIONOFRELATIONSHIP-PRODUCT-CHANNEL(“RPC”)MODEL

The Group strongly believes that a customer-centric management and business model is crucial for sustaining business and

profit growth, thus maximising shareholder return. In accordance with the Group’s 2006-2011 Strategic Plan, the Group

started implementing in early 2007 the RPC (Relationship, Product and Channel Management) Model. As reported in 2006,

the objectives of the model are to build teams of dedicated and professional managers to develop and expand the range of

products and services that are tailored to the needs of different customer segments, and to optimise channels and workflow to

facilitate sales and marketing. Under this Model, the Group will reinforce its capabilities in customer relationship management

(R), product management (P), as well as channel management (C). To ensure success, the Group established a Steering

Committee and Implementation Task Force to formulate an implementation plan, and to monitor and provide guidance in the

implementation process. Besides, five dedicated groups with representatives from different business units responsible for job

evaluation and staff placements, premises assignment, communication, training and finance have been set up to organise,

execute and closely monitor progress.

CORPORATEDEVELOPMENT,TECHNOLOGYANDOPERATIONS

Humanresources

During the year, the Group continued to invest in human resources development to support business growth and help realise

its corporate vision of becoming customers’ premier bank. Medium-term initiatives were taken to enhance staff commitment,

improve productivity and optimise the allocation of resources. In addition, relevant strategies and action plans to support the

implementation of the RPC Model were developed and rolled out.



An employee performance management system was introduced in 2006. It emphasises ongoing evaluation of staff performance

throughout the year and the formulation of staff training and development plans. This system is meant to enhance the Group’s

overall performance and help develop a performance-driven corporate culture.

In 2006, more than 1,500 training courses with over 91,000 attendants were organised. Such courses included workshops

and seminars on wealth management, financial planning, risk management, corporate governance and corporate culture.

Other training channels were also made available to the staff. For instance, an e-learning platform was set up to provide

online interactive training; a self-learning programme integrating distance learning was offered; and small group tutorials and

tests were launched. Moreover, to support the Group’s long-term business expansion, a one-year Officer Trainees Programme

was introduced to provide on-the-job training for newly recruited university graduates. A three-year intensive and systematic

programme tailor-made for Management Trainees recruited from local and overseas universities also commenced in 2006.

Technologyandoperations

To support business growth and the RPC model, the Group continued to enhance its information technology infrastructure and

implement its 5-year IT development strategy. The processing capacity of the Securities Management System was significantly

expanded to cater for the increased volume of stock transactions. The Group’s eIPO services that came on stream in March 2006

also helped capture business opportunities arising from the booming stock market. In October 2006, an eIPO service which

enables customers to subscribe IPO shares using white forms online was successfully launched. The Group’s internet banking

functions, such as stock and futures trading services, foreign exchange margin trading and accounts management, were also

enhanced. Meanwhile, new web pages were introduced to provide more financial and non-financial information. The Customer

Relationship Management System (“CRM”), which provides an integrated view of customers, was established in 2006 to help

frontlines perform better customer analysis and segmentation, as well as facilitate the formulation of marketing strategies.

As part of the Group’s IT strategy, the Group kick-started the implementation of the Financial and Financial Risk Management

System (“FRMS”) in 2006. It is a project aiming to revamp the existing computer systems for different finance functions,

including financial accounting, management accounting, multi-dimension profitability management, and capital management.

It will also help enhance the Group’s asset & liability management (“ALM”). The project is being rolled out in phases. During

the year, the Group started the roadmap and general ledger design and implementation of ALM system. It is expected that

the system will help increase automation, improve operational efficiency and provide value-added information and analytics

for management decisions.

To streamline operating workflows and enhance work efficiency, in January 2006, the Business Optimisation Centre was

established to expedite business operations reform and take charge of project management, such as the implementation of

RPC model, develop optimal project plans and initiates and undertakes business process re-engineering.

REGULATORYDEVELOPMENT

BaselIICapitalAccord

Following the release of the new international capital adequacy framework, “International Convergence of Capital Measurement

and Capital Standards: A Revised Framework” (known as “Basel II”), by Basel Committee on Banking Supervision in June

2004, Hong Kong was among the first batch of major international financial centres to introduce Basel II in January 2007.

The new capital adequacy framework, which comprises three Pillars, is more risk sensitive than the 1988 Accord. Pillar One

aligns regulatory capital requirements more closely with inherent risks and introduces new capital charge on operational risk.

Pillar Two stipulates a framework for the supervisory review of capital adequacy by the regulatory authority while Pillar Three

requires a greater scope of disclosure on capital adequacy and risk management.



The Group has deployed substantial resources to the implementation of Basel II with significant progress. The adoption of

Basel II has had the full support of the senior management. Chaired by the Chief Executive, a steering committee, Basel II

Implementation Steering Committee, was established to enhance and monitor Basel II implementation. Reporting to the Chief

Risk Officer, the Basel II Implementation Office was set up to co-ordinate and ensure proper implementation.

In relation to Pillar One, all the preparatory works, including system and reporting enhancements, have been completed and

the Group will adopt the Standardised Approach to calculate the minimum capital requirement on credit risk, market risk and

operational risk. It also undertook parallel runs with prevailing capital requirements on the calculation of capital adequacy

ratio.

Under Pillar Two, Authorised Institutions are encouraged to develop their systems for conducting the capital adequacy

assessment process (“CAAP”). The Group is currently in the process of planning for Pillar Two implementation. Pillar Three,

which is expected to be fully implemented by June 2007, focuses on the disclosure requirements and policies prescribed by

the Banking (Disclosure) Rules. The Group expects that substantial investment will be required to fully implement Basel II and

considers that continuous monitoring of the process and policies is important. The Group also believes that the new framework

will further strengthen its risk management and facilitate its capital planning and management practices.

CREDITRATINGS

Asat31December2006 Long-term Short-term

Fitch A F1

Moody’s A2 P-1

Standard & Poor’s BBB+

(Upgraded to ‘A-’ on

16 February 2007)

A-2

During the year, the credit ratings of BOCHK were revised by the leading rating agencies.

On 19 June 2006, Fitch Ratings upgraded the individual rating of BOCHK to B from B/C. As at 31 December 2006, BOCHK’s

long-term and short-term foreign currency issuer default ratings were A and F1 respectively while the support rating was 2.

On 7 July 2006, Moody’s Investors Service upgraded its rating outlook on BOCHK from stable to positive and on 11 August

2006, the financial strength rating was under Moody’s review for possible upgrade. As at 31 December 2006, BOCHK’s long-

term and short-term foreign currency bank deposit ratings as assigned by Moody’s were A2 and P-1 respectively.

As at 31 December 2006, the long-term and short-term counterparty credit ratings assigned by Standard & Poor’s to BOCHK

were BBB+ and A-2 respectively. On 16 February 2007, Standard & Poor’s raised the long-term counterparty credit rating to

A- and affirmed A-2 short-term counterparty credit rating on BOCHK.



PROGRESSUPDATEOF2006-2011STRATEGICPLAN

In March 2006, the Group announced its 2006-2011 Strategic Plan which would guide it in developing into a top-quality

financial services group with a powerful base in Hong Kong, a solid presence in China, and a strategic foothold in Asia. During

the year, the Group made good progress in achieving the key strategic focuses. The table below encapsulates the major

progress achieved by the Group in 2006.

• Strengthening the Group’s

Leading Position in Hong

Kong

The Group maintained its leading position in the Mainland-Hong Kong-Macau syndication

loan market, local residential mortgage business, personal RMB business, RMB merchant

acquiring business and RMB card issuing business respectively. In ROE lucrative segments,

the Group made good progress in the following areas:

– wealth Management: The number of total wealth management customers

increased by 45.9% and assets under management rose by 42.9%. Investment and

insurance fee income surged by 62.5%, of which fee income from stockbroking

and sales of funds rose significantly by 93.7% and 56.2% respectively.

– ConsumerLending: Credit card advances and other consumer lending increased

by 17.6% and 9.3% respectively.

– CashManagement: A cash management team was set up to enhance the Group’s

cash management platform by enabling it to offer more related services and

products to customers.

– SMEs: The Group achieved double-digit growth in SME loans. The management

of the SME segment has been shaped up to drive business growth. The Group’s

relationship management team has been proactively expanding the number of SME

clients.

– RMBBankingServices:The Group remained the market leader in Hong Kong’s

personal RMB banking business and was authorised by the People’s Bank of China

to continue serving as the RMB Clearing Bank in Hong Kong. It launched the RMB

Settlement System (“RSS”) together with the RMB Cheque Clearing Services during

the year. In connection with the impending issuance of yuan-denominated bonds in

Hong Kong, the role of BOCHK as RMB clearing bank could be expanded to cover

yuan bonds as well.

• Developing New Capabilities

in Product Manufacturing/

Distribution

– The Group proactively sought out and carefully examined a number of M&A

opportunities in Hong Kong.

– The Group acquired 51% controlling stake in BOC Life, leading to substantial growth

in insurance and investment income, profit and assets.

– The Group’s insurance product portfolio also expanded significantly. In 2006, a series

of new products were introduced and were well received by customers.

– The Group embarked on aggressively building up its sales strengths in insurance. It

established an in-house insurance academy aiming at providing systematic training

for sales staff selling long-term insurance products. In 2006, more than 110

employees were trained by this academy.

• Building a Stronger Presence

in China

– Total advances to customers and customer deposits of the Group’s Mainland

branches increased by 22.7% and 67.4% respectively in 2006.

– The Group submitted its application for the local incorporation of Nanyang

Commercial Bank, its wholly-owned subsidiary, in the Mainland to offer

comprehensive banking services with the focus on retail banking.

• Seeking Regional Expansion The Group has been actively seeking out M&A opportunities in the region, with a view

to identifying really suitable potential targets.


Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited 41

• Corporate Values and Core

Competencies

CorporateValues

– During the year, the Group introduced an employee performance management

system which emphasises on-going coaching and staff performance evaluation. In

addition, as a commitment to long-term human resources development, the Group

launched training programmes for Officer Trainees and Management Trainees

respectively.

– In September, the Group started implementing the five-day work week to enable

the staff to have more time for leisure and personal pursuits, and to enjoy better

quality of life.

– The Group demonstrated its commitment to corporate social responsibility by

participating actively in various social welfare and voluntary services. For details

of its involvement in social responsibility, please refer to pages 70 to 72 – Good

Corporate Citizenship.

CoreCompetencies

The Group received public recognition for its achievements in several key aspects during

the year, ranging from corporate governance and disclosure to marketing and banking

services. (For details, please refer to relevant sections.)

RISKMANAGEMENT

Banking Group

Overview

The Group believes that sound risk management is crucial to the success of any organisation. In its daily operation, the Group

attaches a high degree of importance to risk management and emphasises that a balance must be struck between risk control

and business growth and development. The principal types of risk inherent in the Group’s businesses are reputation risk, legal

and compliance risk, strategic risk, credit risk, market risk, interest rate risk, liquidity risk and operational risk. The Group’s risk

management objective is to enhance shareholder value by maintaining risk exposures within acceptable limits.

RiskManagementGovernanceStructure

The Group’s risk management governance structure is designed to cover the whole process of all businesses and ensure various

risks are properly managed and controlled in the course of conducting business. The Group has a sound risk management

organisational structure. It implements a comprehensive set of policies and procedures to identify, measure, monitor and

control various risks that may arise. These risk management policies and procedures are regularly reviewed and modified to

reflect changes in markets and business strategies. Various groups of risk takers assume their respective responsibilities for

risk management.

The Board of Directors, representing the interests of shareholders, is the highest decision making authority of the Group and has

the ultimate responsibility for risk management. The Board, with the assistance of its committees, has the primary responsibility

for the formulation of risk management strategies and for ensuring that the Group has an effective risk management system

to implement these strategies. The Risk Committee (“RC”), a standing committee established by the Board of Directors, is

responsible for overseeing the Group’s various types of risks, reviewing and approving high-level risk-related policies and

overseeing their implementation, reviewing significant or high risk exposures or transactions and exercising its power of veto

if it considers that any transaction should not proceed. The Audit Committee assists the Board in fulfilling its role in overseeing

the internal control system.



The Chief Executive’s (“CE”) is responsible for managing the Group’s various types of risks, approving detailed risk management

policies, and approving material risk exposures or transactions within his authority delegated by the Board of Directors. The

Chief Risk Officer (“CRO”) assists the CE in fulfilling his responsibilities for the day-to-day management of risks. The CRO is

responsible for initiating new risk management strategies, projects and measures that will enable the Group to better monitor

and manage new risk issues or areas that may arise from time to time from new businesses, products and changes in the

operating environment. He may also take appropriate initiatives in response to regulatory changes. The CRO is also responsible

for reviewing material risk exposures or transactions within his delegated authority and exercising his power of veto if he

believes that any transaction should not proceed.

Various departments of the Group have their respective risk management responsibilities. Business units act as the first line

of defense while risk management units, which are independent from the business units, are responsible for the day-to-day

management of different kinds of risks. Risk management units have the primary responsibilities for drafting, reviewing and

updating various risk management policies and procedures.

The Group’s principal banking subsidiaries, Nanyang and Chiyu, are subject to risk policies that are consistent with those of

the Group. These subsidiaries execute their risk management strategies independently and report to the Group’s management

on a regular basis.

ReputationRiskManagement

Reputation risk is the risk that negative publicity regarding the Group’s business practices, whether genuine or not, might cause

a potential decline in the Group’s customer base or lead to costly litigation or revenue erosion. Reputation risk is inherent in

every aspect of business operation and covers a wide spectrum of issues.

In order to mitigate reputation risk, the Group has formulated its Reputation Risk Management Policy that is diligently

implemented. This policy provides guidance to prevent and manage reputation risk proactively at an early stage. It requires

constant monitoring of external reputation risk incidents and published failures of risk incidents in the financial industry.

LegalandComplianceRiskManagement

Legal risk is the risk that unenforceable contracts, lawsuits or adverse judgments may disrupt or otherwise negatively affect

the operation or financial condition of the Group. Compliance risk is the risk of penalty arising from any failure to comply with

relevant regulations governing the conduct of businesses in specific countries. By establishing and maintaining appropriate

policies and guidelines, the CRO, working through the Legal and Compliance Department, is responsible for proactively

identifying and managing these risks.

StrategicRiskManagement

Strategic risk generally refers to the risks that may induce immediate or future negative impact on the financial and market

positions of the Group because of poor strategic decisions, improper implementation of strategies and lack of response to

the market. The Group has developed a Strategic Risk Management Policy that provides clear guidance for the management

and oversight of such risks.

CreditRiskManagement

Credit risk is the risk that a customer or counterparty will be unable to or unwilling to meet a commitment it has entered

into with the Group. The Risk Management Department (“RMD”), under the supervision of the CRO, provides centralised

management of credit risk within the Group. Different credit approval and control procedures are adopted according to the level

of risk associated with the customer or transaction. Corporate credit applications are independently reviewed and objectively

assessed by risk management units. A credit scoring system is used to process retail credit transactions, including residential

mortgage loans, personal loans and credit cards. The Credit Risk Assessment Committee comprising experts from credit and

other functions of the Group is responsible for making an independent assessment of all credit facilities which require the

approval of Deputy Chief Executives or above.



The Group adopts an eight-grade facility grading structure according to HKMA’s loan classification requirement. RMD provides

regular credit management information reports and ad hoc reports to the Management Committee, RC, AC and Board of

Directors.

MarketRiskManagement

Market risk is the risk of loss that results from movements in market rates and prices. The Group’s market risk arises from

customer-related business and proprietary trading. Trading positions are subject to daily marked-to-market valuation. Market

risk is managed within the risk limits approved by RC. The overall risk limits are divided into sub-limits by reference to different

risk factors, including interest rate, foreign exchange rate, commodity price and equity price.

RMD is responsible for the oversight of the Group’s market risk to ensure that overall and individual market risks are within

the Group’s risk tolerance. Risk exposures are monitored on a day-to-day basis to ensure that they are within established risk

limits.

VAR is a statistical technique which estimates the potential losses that could occur on risk positions taken over a specified time

horizon within a given level of confidence. The Group uses historical movements in market rates and prices, a 99% confidence

level and a 1-day holding period to calculate portfolio and individual VAR.

The following table sets out the VAR for all trading market risk exposure of BOCHK.

HK$’m

At

31December

Minimum

duringtheyear

Maximum

duringtheyear

Averagefor

theyear

VAR for all market risk – 2006 1.5 1.3 5.0 2.8

– 2005 1.8 1.2 5.8 2.6

VAR for foreign exchange risk – 2006 1.7 0.7 5.3 2.8

– 2005 1.2 0.6 5.2 1.9

VAR for interest rate risk – 2006 0.7 0.7 3.0 1.6

– 2005 1.4 0.9 3.7 2.1

VAR for equity risk – 2006 0.5 0.1 1.0 0.3

– 2005 0.1 0.0 0.5 0.1

For the year ended 31 December 2006, the average daily revenue of BOCHK earned from market risk-related trading activities

was HK$2.5 million (2005: HK$2.0 million). The standard deviation of these daily trading revenues was HK$1.5 million (2005:

HK$1.8 million).

InterestRateRiskManagement

The Group’s interest rate risk exposures are mainly structural. The major types of interest rate risk from structural positions

are:

repricing risk – mismatches in the maturity or repricing periods of assets and liabilities

basis risk – different pricing basis for different transactions so that yield on assets and cost of liabilities may change by different

amounts within the same repricing period

The Group’s Asset and Liability Management Committee (“ALCO”) maintains oversight of interest rate risk and RC sanctions

the interest rate risk management policies formulated by ALCO. The interest rate risk is identified and measured on a daily

basis. The Treasury Department manages the interest rate risk according to the established policies. The Finance Department

closely monitors the related risks and the results are reported to RC and ALCO regularly.



Gap analysis is one of the tools used to measure the Group’s exposure to repricing risk. This provides the Group with a static

view of the maturity and repricing characteristics of its balance sheet positions. The Group uses interest rate derivatives to

hedge its interest rate exposures and in most cases, plain vanilla interest rate swaps are used.

Sensitivities of earnings and economic value to interest rate changes (Earnings at Risk and Economic Value at Risk) are assessed

through a hypothetical interest rate shock of 200 basis points across the yield curve on both sides. Earnings at Risk and

Economic Value at Risk are controlled respectively within an approved percentage of the projected net interest income for the

year and the latest capital base as sanctioned by RC. The results are reported to ALCO and RC on a regular basis.

The impact of basis risk is gauged by the projected change in net interest income under scenarios of imperfect correlation in

the adjustment of the rates earned and paid on different instruments. Ratios of assets to liabilities with similar pricing basis

are established to monitor such risk.

LiquidityRiskManagement

The aim of liquidity management is to enable the Group to meet, even under adverse market conditions, all its maturing

repayment obligations on time, and to fund all its asset growth and strategic opportunities without forced liquidation of its

assets at short notice.

The Group funds its operations principally by accepting deposits from retail and corporate depositors. In addition, the Group

may issue certificates of deposit to secure long-term funds. Funding may also be secured through adjusting the asset mix in

the Group’s investment portfolio. The Group uses the majority of funds raised to extend loans, to purchase debt securities or

to conduct interbank placements.

The Group monitors the liquidity risks using cash flow analysis and by examining deposit stability, concentration risk, mismatch

ratios, loan-to-deposit ratio and liquidity profile of the investment portfolio. The primary objective of the Group’s asset and

liability management strategy is to achieve optimal returns while ensuring adequate levels of liquidity and capital within

an effective risk control framework and ALCO is responsible for establishing these policy directives (including the liquidity

contingency plan), and RC sanctions the liquidity management policies. The Treasury Department manages the liquidity

risk according to the established policies. The Finance Department monitors the Group’s liquidity risks and reports to the

management and ALCO regularly.

OperationalRiskManagement

Operational risk relates to the risk of loss resulting from inadequate or failed internal processes, people and systems, or from

external events. RMD oversees the entire operational risk management framework of BOCHK.

The Group has put in place an effective internal control process which requires the establishment of detailed policies and control

procedures for all the key activities. Proper segregation of duties and independent authorisation are the fundamental principles

followed by the Group. The management of respective business lines is responsible for managing and reporting operational

risks specific to their business units by identifying, assessing and controlling the risks inherent in their business processes,

activities and products. These are followed by periodic monitoring and ongoing review of changes by RMD. RMD formulates

corporate-level policies and procedures concerning operational risk management which are approved by RC. RMD evaluates

the operational risk profile, records operational risk data and reports operational risk issues to RC and senior management.

Business continuity plans are in place to support business operations in the event of emergency or disaster. Adequate backup

facilities are maintained and periodic drills are conducted. The Group also arranges insurance cover to reduce potential losses

in respect of operational risk.



CapitalManagement

The major objective of capital management is to maximise total shareholders’ return while maintaining a capital adequacy

position in relation to the Group’s overall risk profile. The Group periodically reviews its capital structure and adjusts the capital

mix where appropriate to achieve the lowest overall cost of capital. ALCO monitors the Group’s capital adequacy. The Group

has complied with all the statutory capital standards for all the periods presented in the report.

StressTesting

The Group supplements the analysis of various types of risks with stress testing. Stress testing is a risk management tool for

estimating the Group’s risk exposures under stressed conditions arising from extreme but plausible market or macroeconomic

movements. These tests are conducted on a regular basis and ALCO monitors the results against limits approved by RC. Stress

test results are also reported to the Board and RC regularly.

Insurance Group

The principal activity of the Group’s insurance business is the underwriting of long-term insurance business in life and annuity,

linked long-term business and retirement scheme management in Hong Kong. Major types of risks inherent in the Group’s

insurance business include insurance risk, interest rate risk and credit risk. BOC Life manages these risks independently and

reports to the Group’s management on a regular basis. The key risks of its insurance business and related risk control process

are as follows:

InsuranceRiskManagement

BOC Life is in the business of insuring against the risk of mortality, morbidity, disability, critical illness, accidents and related

risks. BOC Life manages these risks through the application of its underwriting policies and reinsurance arrangement.

The underwriting strategy is intended to set premium pricing at an appropriate level that corresponds with the underlying

exposure of the risks underwritten. Screening processes, such as the review of health condition and family medical history,

are also included in BOC Life’s underwriting procedures.

Within the insurance process, concentrations of risk may arise where a particular event or series of events could impact heavily

upon BOC Life’s liabilities. Such concentrations may arise from a single insurance contract or through a small number of related

contracts, and relate to circumstances where significant liabilities could arise.

For the in-force insurance contracts, most of the underlying insurance liabilities are related to endowment and unit-linked

insurance products. For most of the insurance policies issued by it, BOC Life has a retention limit of HK$400,000 on any single

life insured. BOC Life reinsures the excess of the insured benefit over HK$400,000 for standard risks (from a medical point

of view) under an excess of loss reinsurance arrangement. BOC Life does not have in place any reinsurance for contracts that

insure survival risk.

Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from

the unpredictability of long-term changes in overall levels of mortality. In order to assess the uncertainty due to the mortality

assumption and lapse assumption, BOC Life conducts mortality study and lapse study in order to determine the appropriate

assumptions. In these studies, consistent results are reflected in both assumptions with appropriate margins.



InterestRateRiskManagement

The main risk that BOC Life faces due to the nature of its investment and liabilities is interest rate risk. BOC Life manages these

positions within an asset liability management (“ALM”) framework that has been developed to achieve long-term investment

returns in excess of its obligations under insurance contracts. For each distinct category of liabilities, a separate portfolio of

assets is maintained. The principal technique of ALM is to match assets to the liabilities arising from insurance contracts by

reference to the type of benefits payable to contracts holders.

CreditRiskManagement

BOC Life has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Key

areas where BOC Life’s insurance business is exposed to credit risk are:

– counterparty risk with respect to structured products transactions and debt securities

– reinsurers’ share of insurance unpaid liabilities

– amounts due from re-insurers in respect of claims already paid

– amount due from insurance contract holders

– amount due from insurance intermediaries

BOC Life structures the levels of credit risk it accepts by placing limits on its exposure to a single investment counterparty,

or groups of counterparties. Such risks are subject to an annual or more frequent review. Limits on the level of credit risk by

category are reviewed and approved regularly by the management.



COrpOrate inFOrmatiOn

BOARDOFDIRECTORS

Chairman

XIAOGang#

Vice Chairmen

SUNChangji#

HEGuangbei

Directors

HUAQingshan#

LIZaohang#

ZHOUZaiqun#

ZHANGYanling#

FUNGVictorKwokKing*

KOHBengSeng*

SHANweijian*

TUNGCheeChen*

TUNGSaviowai-Hok*

YANGLindaTsao*

# Non-executive Directors

* Independent Non-executive Directors

SENIORMANAGEMENT

Chief Executive

HEGuangbei

Deputy Chief Executive

LAMYimNam

Chief Financial Officer

LEERaymondwingHung

Deputy Chief Executive

GAOYingxin

Chief Risk Officer

CHEUNGAlexYauShing

Chief Information Officer

LIUPeterYunKwan

Company Secretary

YEUNGJasonChiwai

REGISTEREDOFFICE

52nd Floor

Bank of China Tower

1 Garden Road

Hong Kong

AUDITORS

PricewaterhouseCoopers

SHAREREGISTRAR

Computershare Hong Kong Investor Services Limited

46th Floor

Hopewell Centre

183 Queen’s Road East

Hong Kong

ADSDEPOSITARYBANK

Citibank, N.A.

388 Greenwich Street

14th Floor

New York, NY 10013

United States of America

wEBSITE

www.bochk.com



Create



values and deliver superior returns to shareholders

The acquisition of BOC Life represents a breakthrough of the Group in enhancing business capabilities and developing a full-service business model


BOarD OF DireCtOrs anD seniOr management

Mr. XIAO Gang Mr. SUN Changji Mr. HE Guangbei Mr. HUA Qingshan

Mr.HEGuangbeiVice Chairman andChief Executive

Aged 52. Vice Chairman, Chief Executive and member of Strategy and Budget Committee of the Company and BOCHK. Chairman of Nanyang, Chiyu, BOC Life, Hong Kong Interbank Clearing Limited and HKICL Services Limited. Director of Hong Kong Note Printing Limited. Designated representative of BOCHK to the Hong Kong Association of Banks and presiding Chairman in 2005. Member of the Exchange Fund Advisory Committee and Banking Advisory Committee of the HKMA. Board member of Hong Kong Airport Authority, member of the Executive Committee of the Hong Kong Government Commission on Strategic Development and member of the Greater Pearl River Delta Business Council.

Mr.SUNChangjiVice Chairman

Aged 64. Vice Chairman of the Board of Directors and Chairman of Nomination and Remuneration Committee of the Company and BOCHK. Director of BOC (BVI) and BOCHKG.

Mr.XIAOGangChairman

Aged 48. Chairman of the Board of Directors of the Company and BOCHK. Chairman of BOC. Director of BOC (BVI) and BOCHKG.

Directors

Mr.HUAQingshanNon-executive Director

Aged 54. Non-executive Director and member of Risk Committee and Strategy and Budget Committee of the Company and BOCHK. Executive Director and Executive Vice President of BOC.

Mr.LIZaohangNon-executive Director

Aged 51. Non-executive Director and member of Nomination and Remuneration Committee of the Company and BOCHK. Executive Director and Executive Vice President of BOC. Chairman of BOC Insurance and Bank of China (Canada).

Mr. LI Zaohang


BoaRDofDiReCtoRsanDsenioRManageMent

Mr. ZHOU Zaiqun Mdm. ZHANG Yanling

Directors

Mr.ZHOUZaiqunNon-executive Director

Aged 54. Non-executive Director and member of Audit Committee and Strategy and Budget Committee of the Company and BOCHK. Executive Vice President of BOC and Chairman of BOC-CC.

Mdm.ZHANGYanlingNon-executive Director

Aged 55. Non-executive Director and member of Risk Committee of the Company and BOCHK. Executive Vice President of BOC. Chairman of Bank of China (Hungary) Limited and Vice Chairman of BOCI.

Mr.KOHBengSengIndependent Non-executive Director

Aged 56. Independent Non-executive Director and Chairman of Risk Committee and member of the Audit Committee of the Company and BOCHK. Chief Executive Officer of Octagon Advisors Pte Ltd.

Dr. FUNG Victor Kwok King Mr. KOH Beng Seng Mr. SHAN Weijian

Dr.FUNGVictorKwokKingIndependent Non-executive Director

Aged 61. Independent Non-executive Director and member of Audit Committee and Nomination and Remuneration Committee of the Company and BOCHK. Chairman of the Li & Fung Group of companies.

Mr.SHANweijianIndependent Non-executive Director

Aged 53. Independent Non-executive Director and Chairman of Audit Committee and member of Nomination and Remuneration Committee of the Company and BOCHK. Partner of TPG Newbridge.



Mr. TUNG Chee Chen Mr. TUNG Savio Wai-Hok Mdm. YANG Linda Tsao

Mr.TUNGCheeChenIndependent Non-executive Director

Aged 64. Independent Non-executive Director and member of Audit Committee and Nomination and Remuneration Committee of the Company and BOCHK. Chairman and Chief Executive Officer of Orient Overseas (International) Limited.

Mr.LAMYimNamDeputy Chief Executive

Aged 54. Deputy Chief Executive in charge of Personal Banking and Product Management, Channel Management, BOC-CC and BOC Life. Director of BOC-CC and BOC Life. Deputy General Manager of the Kwangtung Provincial Bank, Hong Kong Branch from 1989 to 1998.

Mr.TUNGSaviowai-HokIndependent Non-executive Director

Aged 55. Independent Non-executive Director and member of Audit Committee, Risk Committee and Strategy and Budget Committee of the Company and BOCHK. Managing Director of Investcorp and Head of Investcorp’s Technology Investment Group.

Directors SeniorManagement

Mr. LAM Yim Nam Mr. LEE Raymond Wing Hung

Mdm.YANGLindaTsaoIndependent Non-executive Director

Aged 80. Independent Non-executive Director and member of Audit Committee and Nomination and Remuneration Committee of the Company and BOCHK. Chairlady of Strategy and Budget Committee of the Company and BOCHK. Chairlady of the Asian Corporate Governance Association (ACGA).

Mr.LEERaymondwingHungChief Financial Officer

Aged 57. Chief Financial Officer of the Group. Former director of CITIC International Financial Holdings Limited. Former Director and Chief Executive of the Hong Kong Chinese Bank and former Senior Vice President and Managing Director of the Bank of New York.



Mr.GAOYingxinDeputy Chief Executive

Aged 44. Deputy Chief Executive in charge of Corporate Banking and Financial Institutions, Product Management, Global Markets and China Business. Former President and Chief Operating Officer of BOCI and former General Manager of Corporate Banking at BOC Head Office.

Mr.CHEUNGAlexYauShingChief Risk Officer

Aged 45. Chief Risk Officer in charge of the Group’s overall risk management function, overseeing BOCHK’s Risk Management Department and Legal and Compliance Department. Former Assistant General Manager and Chief Credit Officer of Hang Seng Bank.

Mr.YEUNGJasonChiwaiCompany Secretary

Aged 52. Company Secretary of the Company and BOCHK. Company Secretary of BOC.

SeniorManagement

Mr. GAO Yingxin Mr. CHEUNG Alex Yau Shing Mr. LIU Peter Yun Kwan Mr. YEUNG Jason Chi Wai

Mr.LIUPeterYunKwanChief Information Officer

Aged 55. Chief Information Officer in charge of the Group’s Information Technology Department. Former Sector Head – Business Consulting Services (Financial Services Sector) for IBM China/Hong Kong Limited. Former Regional Chief Operating Officer of UBS Warburg and former Global Business Technology Officer of UBS Private Banking.


repOrt OF tHe DireCtOrs

The Directors are pleased to present

t he i r repo r t t oge the r w i th t he

Summary Financial Statements of the

Company and its subsidiaries for the

year ended 31 December 2006.

PrincipalActivitiesThe principal activities of the Group

are the provision of banking and

related financial services. An analysis

of the Group’s performance for the

year by business segments is set out

in Note 10 to the Summary Financial

Statements.

ResultsandAppropriationsThe results of the Group for the year

are set out in the consolidated income

statement on page 74.

The Boa rd has recommended a

f ina l d i v idend of HK$0.447 per

share, amounting to approximately

HK$4,726 mil l ion, subject to the

approva l of shareholders at the

forthcoming Annual General Meeting

to be held on Wednesday, 23 May

2007. If approved, the final dividend

will be paid on Wednesday, 30 May

2007 to shareholders whose names

appear on the Register of Members

of the Company on Tuesday, 22 May

2007. Together with the inter im

div idend of HK$0.401 per share

declared in August 2006, the total

dividend payout for 2006 would be

HK$0.848 per share.

ClosureofRegisterofMembersThe Register of Members of the

Company wil l be closed, for the

purpose of determining shareholders’

entitlement to the final dividend,

from Thursday, 17 May 2007 to

Tuesday, 22 May 2007 (both days

inclusive), during which period no

transfer of shares will be registered.

In order to rank for the final dividend,

shareholders should ensure that all

transfer documents, accompanied

by the relevant share certificates, are

lodged with the Company’s Share

Registrar, Computershare Hong Kong

Investor Services Limited, at Rooms

1712-1716, 17th Floor, Hopewell

Centre, 183 Queen’s Road East, Hong

Kong, not later than 4:30 p.m. on

Wednesday, 16 May 2007. Shares

of the Company will be traded ex-

dividend as from Tuesday, 15 May

2007.

ReservesDetails of movements in the reserves

of the Group are set out in Note 9 to

the Summary Financial Statements.

DonationsChar i tab le and other donat ions

made by the Group during the year

amounted to approximately HK$6

million.

Properties,PlantandEquipmentDetails of movements in properties,

plant and equipment of the Group

are set out in Note 5 to the Summary

Financial Statements.

ShareCapitalDetails of the share capital of the

Company are set out in Note 8 to the

Summary Financial Statements.

As at the latest practicable date prior

to the issue of this Summary Financial

Statements and based on publicly

available information, the public float

of the Company was approximately

34%. The Directors consider that

there is sufficient public float in the

shares of the Company.

DistributableReservesDistributable reserves of the Company

as at 31 December 2006, calculated

under section 79B of the Hong Kong

Companies Ordinance, amounted to

approximately HK$5,965 million.

Five-yearFinancialSummaryA summary of the results, assets and

liabilities of the Group for the last five

years is set out on page 3.

DirectorsT h e p r e s e n t D i r e c t o r s o f t h e

Company are set out on page 47. The

biographical details of the Directors

and senior management are set out

on pages 50 to 53 of this Summary

Financial Statements. The term of

office for each Non-executive Director

is approximately three years.

Mr. Koh Beng Seng was appointed

as an Independent Non-executive

Director of the Company on 23 March

2006 and was elected by shareholders

at the annual general meeting of

the Company held on 26 May 2006.

Mr. Anthony Neoh has resigned as

the Senior Adviser to the Board of

Directors of the Company with effect

from 1 January 2006.


RepoRtoftheDiReCtoRs

In accordance with Article 98 of the

Company’s Articles of Association, at

each annual general meeting, one-

third of the Directors or the nearest

number to but not less than one-third

of the Directors shall retire from office

by rotation and be eligible for re-

election. Accordingly, Mr. Sun Changji,

Mr. Hua Qingshan, Mr. Zhou Zaiqun,

Mr. Tung Chee Chen and Mdm. Yang

Linda Tsao will retire by rotation at the

forthcoming Annual General Meeting

and, being eligible, offer themselves

for re-election.

Each of the retir ing Independent

Non-execut ive Directors , namely,

Mr. Tung Chee Chen and Mdm.

Yang L inda Tsao , has g i ven an

annua l con f i rma t i on o f h i s / he r

i ndependence to the Company.

Based on such confirmation and the

information available to the Board,

and by reference to the “Policy on

Independence of Directors” previously

adopted by the Board which sets

out more stringent independence

criteria than those contained in the

Listing Rules, the Board considers

that Mr. Tung and Mdm. Yang are

independent. Further, in view of their

extensive knowledge and experience,

the Board bel ieves that their re-

election is in the best interests of the

Company and the shareholders as a

whole.

Directors’ServiceContractsNo Director offering for re-election

at the forthcoming Annual General

Meeting has a service contract with

the Company or any of its subsidiaries

which is not determinable by the

employing company within one year

without payment of compensation

other than the normal statutory

compensation.

Directors’InterestsinContractsofSignificanceNo contracts of s ign i f i cance, in

relation to the Group’s business to

which the Company, i t s hold ing

companies, or any of its subsidiaries

or fellow subsidiaries was a party and

in which a Director had a material

interest, whether directly or indirectly,

subsisted at the end of the year or at

any time during the year.

Directors’InterestsinCompetingBusinessMessrs. Xiao Gang, Hua Qingshan

and Li Zaohang are directors of BOC.

Mr. Zhou Zaiqun and Mdm. Zhang

Yanling are members of the senior

management of BOC.

BOC is a joint stock limited liability

commercial bank in the Mainland

of China prov id ing a fu l l range

of commercial banking and other

financial services through its associates

throughout the world. Certain of

the Group’s operations overlap with

and/or are complementary to those of

BOC and its associates. To the extent

that BOC or its associates compete

w i t h t h e G ro u p , t h e D i re c t o r s

believe that the Group’s interests

are adequately protected by good

corporate governance practices and

the involvement of the Independent

Non-executive Directors.

Further, the Board’s mandate also

e x p re s s l y p ro v i d e s t h a t u n l e s s

permissible under applicable laws

o r regu la t ions , i f a subs tan t i a l

shareholder or a Di rector has a

confl ict of interest in the matter

to be considered by the Board, the

matter shall not be dealt with by way

of written resolutions, but a Board

meeting attended by Independent

Non-executive Directors who have no

material interest in the matter shall be

held to deliberate on the same.

Save as disclosed above, none of the

Directors is interested in any business

apart from the Group’s business,

wh i ch compete s o r i s l i ke l y to

compete, either directly or indirectly,

with the Group’s business.

Directors’RightstoAcquireSharesOn 5 Ju l y 2002 , the fo l l ow ing

Directors were granted options by

BOC (BVI), the immediate holding

company of the Company, pursuant

to a Pre-Listing Share Option Scheme

to purchase from BOC (BVI) existing

issued shares of the Company at a

price of HK$8.50 per share. These

options have a vesting period of four

years from 25 July 2002 with a valid

exercise period of ten years. Twenty-

five percent of the shares subject to

such options will vest at the end of

each year.



Particulars of the outstanding options granted to the Directors under the Pre-Listing Share Option Scheme as at 31 December 2006 are set out below:

Numberofshareoptions

Dateofgrant

Exerciseprice

(HK$)Exercisable

period

Grantedon5July

2002

Balancesasat

1January2006

Exercisedduring

theyear

Surrenderedduring

theyear

Lapsedduring

theyear

Balancesasat

31December2006

SUN Changji 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,590,600 1,590,600 – – – 1,590,600

HE Guangbei 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,446,000 1,084,500 – – – 1,084,500

HUA Qingshan 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,446,000 1,446,000 – – – 1,446,000

LI Zaohang 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,446,000 1,446,000 – – – 1,446,000

ZHOU Zaiqun 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,446,000 1,446,000 – – – 1,446,000

ZHANG Yanling 5 July 2002 8.50 25 July 2003 to 4 July 2012

1,446,000 1,446,000 – – – 1,446,000

Total 8,820,600 8,459,100 – – – 8,459,100

Save as disclosed above, at no time during the year was the Company, its holding companies, or any of its subsidiaries or fellow subsidiaries a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Directors’andChiefExecutive’sInterestsinShares,UnderlyingSharesandDebenturesSave as disclosed above, as at 31 December 2006, none of the Directors or Chief Executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company pursuant to section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

SubstantialInterestsinShareCapitalThe register maintained by the Company pursuant to section 336 of the SFO recorded that, as at 31 December 2006, the following corporations had the following interests (as defined in the SFO) in the Company set opposite their respective names:

NameofCorporation No.ofsharesofHK$5eachintheCompany

(%oftotalissuedshares)

Central SAFE 6,964,141,034 (65.87%)

BOC 6,964,141,034 (65.87%)

BOCHKG 6,953,838,825 (65.77%)

BOC (BVI) 6,953,838,825 (65.77%)

Notes:

1. Following the reorganisation of BOC in August 2004, Central SAFE holds the controlling equity capital of BOC on behalf of the State. Accordingly, for the purpose of the SFO, Central SAFE is deemed to have the same interests in the Company as BOC.

2. BOC holds the entire issued share capital of BOCHKG, which in turn holds the entire issued share capital of BOC (BVI). Accordingly, BOC and BOCHKG are deemed to have the same interests in the Company as BOC (BVI) for the purpose of the SFO.

3. BOC (BVI) beneficially held 6,953,271,456 shares of the Company. BOC (BVI) also holds 93.64% of the issued share capital of Hua Chiao which is in members’ voluntary winding-up. Accordingly, for the purpose of the SFO, BOC (BVI) is deemed to have the same interests in the Company as Hua Chiao which had an interest in 567,369 shares of the Company as recorded in the register maintained by the Company under section 336 of the SFO.

4. BOC holds the entire issued share capital of BOC Insurance. Accordingly, for the purpose of the SFO, BOC is deemed to have the same interests in the Company as BOC Insurance which had an interest in 5,700,000 shares of the Company.

5. BOC holds the entire issued share capital of BOCI, which in turn holds the entire issued share capital of BOCI Asia Limited and BOCI Financial Products Limited. Accordingly, BOC is deemed to have the same interests in the Company as BOCI Asia Limited and BOCI Financial Products Limited for the purpose of the SFO. BOCI Asia Limited had an interest in 4,351,500 shares of the Company and an interest in 250,000 shares held under physically settled equity derivatives while BOCI Financial Products Limited had an interest in 709 shares of the Company.



All the interests stated above represented long positions. Save as disclosed above, as at 31 December 2006, no other

interests or short positions were recorded in the register maintained by the Company under section 336 of the SFO.

ManagementContractsNo contracts concerning the management or administration of the whole or any substantial part of the business of the

Company were entered into or existed during the year.

ShareOptionsPursuant to written resolutions of all the Company’s shareholders passed on 10 July 2002, the Company has approved

and adopted two share option schemes, namely, the Share Option Scheme and the Sharesave Plan. No options have been

granted by the Company pursuant to the Share Option Scheme or the Sharesave Plan during the year.

The following is a summary of the Share Option Scheme and the Sharesave Plan disclosed in accordance with the Listing

Rules:

ShareOptionScheme SharesavePlan

Purpose To provide the participants with the

opportunity to acquire proprietary interests

in the Company, to attract and retain the

best available personnel, to encourage and

motivate the participants to work towards

enhancing the value of the Company and its

shares, to allow the participants to participate

in the growth of the Company and to align

the interests of the Company’s shareholders

with those of the participants.

To encourage broad-based employee

ownership of the Company’s shares,

to increase employee awareness and

participation in the Company’s share price

performance, to provide employees with an

additional vehicle for asset accumulation and

to align the interests of all employees with

those of the Company’s shareholders.

Participants Subject to compliance with applicable laws,

any full-time or part-time employee, executive

or officer of the Group, executive or non-

executive director of the Group, or full-time

or part-time employee, executive, officer

or director of BOC or any of its subsidiaries

serving as a member of any committee of the

Group.

Any employee, executive, officer or director

of the Group, having such qualifying

period of service (if any) as the Board may

determine from time to time and not having

been granted any options under the Share

Option Scheme.

Total number of shares

available for issue and

percentage of issued share

capital as at 31 December

2006

The maximum number of shares in respect

of which options may be granted under the

Share Option Scheme, the Sharesave Plan and

any other share option schemes and savings-

based share option plans of any company in

the Group (the “Other Schemes and Plans”)

shall not in aggregate exceed 10% of the

shares in issue on 10 July 2002, that is,

1,057,278,026 shares.

Same as Share Option Scheme.



ShareOptionScheme SharesavePlan

Maximum entitlement of each participant

The total number of shares issued and to be issued upon the exercise of the options granted and to be granted to any one participant under the Share Option Scheme and the Other Schemes and Plans (including exercised, cancelled and outstanding options) in any twelve-month period up to and including the date of grant shall not exceed 1% of the shares in issue from time to time.

The maximum number of shares (rounded down to the next whole number) which can be paid for at the exercise price with monies equal to the aggregate of the savings contributions the participant has undertaken to make by the Maturity Date (defined as below) and interest which may be accrued thereon. Provided that the total number of shares issued and to be issued upon the exercise of the options granted and to be granted to any one participant under the Sharesave Plan and the Other Schemes and Plans (including exercised, cancelled and outstanding options) in any twelve-month period up to and including the date of grant shall not exceed 1% of the shares in issue from time to time. The amount of the monthly contribution to be made by a participant shall not be less than 1% and not more than 10% of the participant’s monthly salary or such other maximum or minimum amounts as permitted by the Board.

Period within which the shares must be taken up under an option

Such period as shall be prescribed by the directors and specified in the letter of offer.

The thirty-day period (excluding the anniversary days) immediately after the first and second anniversary days from the date of grant or such other date as determined by the Board, or the thirty-day period immediately after the third anniversary of the date of grant or such other date as determined by the Board (the “Maturity Date”), or such other period(s) as may be determined by the Board.

Minimum period for which an option must be held before it can be exercised

Such minimum period as shall be prescribed by the directors and specified in the letter of offer.

One year.

(a) Amount payable on acceptance of the option

(a) HK$1.00 (a) HK$1.00

(b) Period within which payments or calls must or may be made

(b) Payment or an undertaking to make payment on demand of the Company must be received by the Company within the period open for acceptance as set out in the letter of offer which shall not be less than 7 days after the offer date.

(b) Payment or an undertaking to make payment on demand of the Company must be received by the Company not later than the date specified in the letter of invitation as the directors may determine.

(c) The period within which loans for such purposes must be repaid

(c) Not applicable. (c) Not applicable.

Basis of determining the exercise price

The exercise price is determined on the date of grant by the directors and shall not be less than the highest of:

(a) the nominal value of the Company’s shares;

(b) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant, which must be a business day; and

(c) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant.

Same as Share Option Scheme.

Remaining life The Share Option Scheme shall remain in force for a period of ten years commencing on the first day of dealings in the Company’s shares on the Stock Exchange which was 25 July 2002.

The Sharesave Plan shall remain in force for a period of ten years after the date of approval and adoption of the Sharesave Plan by the Company’s shareholders which was 10 July 2002.

Please refer to the section “Directors’ Rights to Acquire Shares” for details of the options granted by BOC (BVI) over shares

of the Company pursuant to the Pre-Listing Share Option Scheme.



Purchase,SaleorRedemptionoftheCompany’sSharesDuring the year, neither the Company

no r any o f i t s subs id i a r i e s has

purchased, sold or redeemed any of

the Company’s shares.

Compliancewith“CodeonCorporateGovernancePractices”The Company is in full compliance

with all the code provisions set out in

the “Code on Corporate Governance

Practices” contained in Appendix 14

of the Listing Rules and also complies

with nearly all the recommended best

practices set out in the said Code.

For further details, please refer to

the “Corporate Governance Report”

contained in this Summary Financial

Report.

MajorCustomersDuring the year, the f ive largest

customers of the group accounted for

less than 30% of the total of interest

income and other operating income of

the Group.

ConnectedTransactionsThe Independent Non-execut i ve

D i r e c t o r s h a v e r e v i e w e d t h e

transact ions which the Company

disclosed in a public announcement

on 4 January 2005 and 11 April 2006

and confirmed that these transactions

were:

(i) entered into in the ordinary and

usual course of business of the

Group;

(ii) conduc ted e i the r on no rma l

commercial terms or, i f there

were not sufficient comparable

transactions to judge whether they

were on normal commercial terms,

were on terms that were fair and

reasonable so far as the Company’

s shareholders are concerned;

(iii) entered into either in accordance

with the terms of the agreements

gove r n ing such t r an sac t i on s

or (where there were no such

agreements) on terms no less

favourable than those available to

or from independent third parties,

as applicable; and

(iv) in each case where an annual cap

had been set, that such cap was

not exceeded.

BudgetaryDisciplineandReportingThe annual budget of the Group

is reviewed and approved by the

Boa rd o f D i re c to r s p r i o r to i t s

implementation by the Management.

F i n a n c i a l a n d b u s i n e s s t a r g e t s

are allocated to departments and

subs id i a r i e s . The re a re de f i ned

procedures for the appraisal, review

and approval of major capital and

recurr ing expenditures. Proposed

significant expenditures outside the

approved budget wil l be referred

to the Board or the relevant Board

committee for decis ion. Financial

pe r fo rmance aga in s t t a rge t s i s

reported to the Board regular ly.

Should significant changes arise in

relation to the operations, a revised

financial forecast will be submitted to

the Board for review and approval in a

timely manner.

CompliancewiththeGuidelineon“FinancialDisclosurebyLocallyincorporatedAuthorizedInstitutions”

The financial statements for the year

ended 31 December 2006 fully comply

with the requirements set out in the

guideline on “Financial Disclosure

by Locally Incorporated Authorized

Institutions” under the Supervisory

Policy Manual issued by the HKMA.

Auditors

The financial statements have been

audited by PricewaterhouseCoopers. A

resolution for their re-appointment as

auditors for the ensuing year will be

proposed at the forthcoming Annual

General Meeting.

On behalf of the Board

XIAOGang

Chairman



COrpOrate gOvernanCe

The Company i s commit ted to

maintaining and upholding good

corporate governance in order to

protect the interests of shareholders,

customers and staff. The Company

ab ides s t r i c t l y by the l aws and

regulations of the jurisdiction where it

operates, and observes the guidelines

a n d r u l e s i s s u e d b y re g u l a t o r y

authorities such as the Hong Kong

Monetary Authority, the Hong Kong

Securities and Futures Commission

and the Stock Exchange of Hong

Kong. It also keeps its corporate

governance system under constant

review to ensure that it is in line with

international and local best practices.

The Company is in full compliance

withall theprovisionsof theCode

on Corporate Governance Practices

(the Code) as appended to the Listing

Rules of Hong Kong. It also complies

with nearly all the recommended

best practices set out in the Code.

A more recent development is that

starting from the third quarter of

2 0 0 6 , t h e C o m p a n y p u b l i s h e s

quarterly financial and business

reviews so that shareholders can be

better updated of the performance,

financial position and prospects of the

Company.

T h e h i g h s t a n d a r d s o f t h e

Company’s corporate governance

practicesarereflectedinthepublic

recognition it has won through

theyears. In 2006, the Company was

named one of the top ten companies

for corporate governance among

the 174 loca l ly l i s ted companies

surveyed in the Corporate Governance

Scorecard Project jointly sponsored

by the City University of Hong Kong

and the Hong Kong Inst i tute of

Directors. The Company also received

a Special Mention in the Hang Seng

Index Category of the Best Corporate

Governance Disclosure Awards 2006

from the Hong Kong Inst itute of

Certified Public Accountants.

This Summary Corporate Governance

Report only gives a summary of the

information contained in the ful l

Corporate Governance Report which

is set out in the 2006 Annual Report

of the Company. The Annual Report,

incorporat ing the fu l l Corporate

Gover nance Repor t , i s ava i l ab le

( in Engl i sh and Chinese) on the

Company’s website at www.bochk.com

and the Stock Exchange’s website at

www.hkex.com.hk.

CorporateGovernanceFrameworkThe Board is at the core of the

Company’s corporate governance

f ramework , and the re i s c lear

divisionofresponsibilitiesbetween

the Board and the Management.

The Board is responsible for providing

high-level guidance and effect ive

o v e r s i g h t o f t h e M a n a g e m e n t .

Generally, the Board is responsible for:

• formulat ing the Group’s long-

term strategy and monitoring the

implementation thereof;

• rev iewing and approv ing the

annual business plan and financial

budget;

• approving the annual, interim and

quarterly reports;

• reviewing and monitor ing r isk

management and internal control;

• ensuring good corporate governance

and effective compliance; and

• monitoring the performance of the

Management.

The Board authorises the Management

to execute strategies that have been

approved. The Management reports

to the Board and is responsible for the

day-to-day operation of the Group.

To avoid the concentration of power

in any single individual, the positions

of the Chairman and the Chief

Executiveareheldbytwodifferent

individuals. Their roles are distinct

and are clearly established and

stipulatedintheBoard’sMandate.

Taking into considerat ion market

p rac t i ces and in te rnat iona l bes t

practices in corporate governance,

the Board has established four

standingBoardCommittees to assist

it in carrying out its responsibilities.

They a re the Aud i t Commi t tee ,

N o m i n a t i o n a n d R e m u n e r a t i o n

Committee, Risk Committee, and

Strategy and Budget Committee.

Should the need arise, the Board

w i l l a u t h o r i s e a n i n d e p e n d e n t

board committee comprising all the

independent non-executive Directors

to rev iew, approve and moni tor

connected transactions (including the

continuing connected transactions)

that should be approved by the Board.

The following chart sets out the Company’s corporate governance framework.

RiskCommittee

nomination&Remuneration

CommitteeauditCommittee

strategy&BudgetCommitteeTheBoardof

Directors

Management

Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited 61

CoRpoRategoveRnanCe

adopted the “Policy on Independence

of Di rectors”. The Company has

received from each of the independent

non-executive Directors an annual

confirmation of his/her independence

by reference to the Policy. On the

basis of these confirmations and

in fo rmat ion ava i l ab le to i t , the

Company considers all of them to be

independent. Biographical details of

the Directors are set out in the “Board

of Directors and Senior Management”

section of this Summary Financial

Report and the Company’s website at

www.bochk.com.

A l l t he ex i s t i ng non-execut ive

D i r e c t o r s a n d i n d e p e n d e n t

non-executive Directors of the

Company have been appointed

for a f ixed term, with formal

letters of appointment set t ing

out the key terms and conditions of

their appointment. The Nomination

and Remuneration Committee has

established a written and formal

p ro c e s s f o r t h e a p p o i n t m e n t

of independent non-execut ive

D i re c t o r s t o e n s u re t h a t t h e

a p p o i n t m e n t p r o c e d u r e s a r e

s t a n d a r d i s e d , t h o r o u g h a n d

transparent.

There is no relationship (including

financial, business, family or other

material/relevant relationship(s))

among the Board members. It is

expressly provided in the Board’s

Mandate that, unless permiss ible

under applicable laws or regulations,

if a substantial shareholder or Director

has a conflict of interest in the matter

to be considered by the Board, a Board

meeting attended by independent

non-executive Directors who have no

material interest in the matter shall be

held to deliberate on the same.

The Company has a r r anged fo r

appropriate Directors’ Liabil ity

The Company’s corporate website

(www.bochk.com) contains detailed

i n f o r m a t i o n o n t h e C o m p a n y ’s

corporate governance principles and

framework, the compositions of the

Board and Board Committees and a

summary of their respective terms of

reference, shareholders’ rights and the

Company’s Fair Disclosure Policy.

BoardofDirectorsN o n - e x e c u t i v e D i re c t o r s a n d

i n d e p e n d e n t n o n - e x e c u t i v e

Directors form the majority of

the Board. This structure ensures

the independence and objectivity of

the Board’s decision-making process

as wel l as the thoroughness and

impartiality of the Board’s oversight

of the Management. The Board acts

honestly and in good faith in order to

maximise long-term shareholder value

and fulfill its corporate responsibility

to other stakeholders of the Group. Its

decisions are made objectively and in

the best interests of the Group.

The Board currently has 13 members,

compris ing s ix independent non-

executive Directors, six non-executive

Directors and one executive Director.

Mr. Koh Beng Seng was appointed

independent non-executive Director

with effect from 23 March 2006 and

was duly elected by the shareholders

at the annual general meeting held on

26 May 2006 in accordance with the

requirement of the Company’s Articles

of Associat ion. Save as disc losed

above, there were no other changes to

the composition of the Board in 2006

and up to the date of this report.

All Directors possess extensive

e x p e r i e n c e i n b a n k i n g a n d

management , and near ly ha l f

of them are independent non-

execut ive Directors , of whom

several are experts in financial

m a n a g e m e n t . T h e B o a r d h a s

Insurance Policy to indemnify the

Directors for liabilities arising out

ofcorporateactivities. The coverage

and the sum insured under the policy

are reviewed annually.

To ensure that newly appo inted

Directors have adequate understanding

o f the Company ’s bus ines s and

operat ion, the Board enforces a

formal sys tem for the in i t ia l

inductionandongoingprofessional

developmentoftheDirectors.

Seven Board meetings were held

during the year with an average

attendancerateof99%.

Apart from formal Board meetings

and general meet ings, there wi l l

also be opportunities for the Board

and the Management to interact

and communicate on relatively less

formal occasions. Further, an off-

site event will be held annually to

enhance communication among Board

members, and between the Board and

the Management.

AuditCommitteeThe Audit Committee currently has

seven members comprising one non-

executive Director and al l the six

independent non-executive Directors.

Independent non-executive Directors

make up 86% of the Committee

members. The Committee is chaired

by Mr. Shan Weijian, an independent

non-executive Director.

The Committee ass is ts the Board

in fu l f i l l ing i ts overs ight ro le over

the Company and i ts subs id iar ies

in , among others , the fo l lowing

areas:

• integrity of financial statements

and financial reporting process;

• internal control systems;


CoRpoRategoveRnanCe

• effect iveness of internal audit

function and performance appraisal

of the Head of Internal Audit;

• a p p o i n t m e n t o f e x t e r n a l

auditors and assessment of their

qua l i f i c a t i on s , i ndependence

a n d p e r f o r m a n c e a n d , w i t h

a u t h o r i s a t i o n o f t h e B o a rd ,

d e t e r m i n a t i o n o f t h e i r

remuneration;

• periodic review and annual audit

of the Company’s and the Group’s

financial statements, and financial

and business review;

• c o m p l i a n c e w i t h a p p l i c a b l e

accounting standards as well as

legal and regulatory requirements

on financial disclosures; and

• corporate governance framework

of the Group and implementation

thereof.

The work performed by the Audit

Committee in 2006 inc luded the

review and, where applicable, approval

of:

• the Company’s Directors’ Report

and financial statements for the

year ended 31 December 2005 and

the annual results announcement

that were recommended to the

Board for approval;

• the Company’s interim financial

statements for the six months

ended 30 June 2006 and the

interim results announcement that

were recommended to the Board

for approval;

• the Company’s announcement on

quarterly financial and business

rev i ew fo r the pe r iod ended

30 September 2006 that was

recommended to the Board for

approval;

NominationandRemunerationCommitteeThe Nomination and Remuneration

Committee currently has six members

c o m p r i s i n g t w o n o n - e x e c u t i v e

Directors and four independent non-

executive Directors. The independent

non-executive Directors represent two-

thirds of the Committee members.

The Committee is chaired by Mr. Sun

Changji, Vice-chairman of the Board.

The Committee assists the Board in

fulfilling its oversight role over the

Company and i ts subsidiar ies in,

among others, the following areas:

• ove ra l l human resources and

remuneration strategies of the

Group;

• s e l e c t i on and nomina t i on o f

D i r e c t o r s , B o a rd C o m m i t t e e

m e m b e r s a n d c e r t a i n s e n i o r

executives as designated by the

Board from time to time;

• structure, size and composition

(including skills, experience and

knowledge) of Directors and Board

Committee members;

• remuneration of Directors, Board

Committee members and senior

management; and

• effectiveness of the Board and

Board Committees.

The work performed by the Committee

in 2006 included the review and,

where applicable, approval of:

• per formance appra i sa l of the

executive Director and designated

senior executives for year 2005;

• proposal on staff bonus for year

2005 and salary adjustment for

year 2006 for the Group, including

the designated senior executives;

• the audit report and report on

internal control recommendations

submitted by the external auditors,

and the on-site examination report

issued by regulators;

• the re-appointment of external

auditors, the audit fees payable to

external auditors for the annual

audit, interim review and other

non-audit services;

• the Group’s internal audit plan for

2006 and key areas identified;

• t h e d e p l o y m e n t o f h u m a n

r e s o u r c e s a n d p a y l e v e l o f

t h e I n t e r n a l A u d i t , a n d t h e

Department’s budget for 2006;

and

• t h e 2 0 0 6 k e y p e r f o r m a n c e

i n d i c a t o r s f o r a n d 2 0 0 5

performance appraisal of the Head

of Internal Audit.

In add i t ion , in accordance w i th

internat iona l best pract i ces , the

A u d i t C o m m i t t e e e n g a g e d a n

i n d e p e n d e n t t h i r d p a r t y t o

c o n d u c t a q u a l i t y a s s u r a n c e

review on the Group’s internal

audit function dur ing the year.

T h e r e v i e w f o u n d t h a t m a n y

practicesadoptedbytheInternal

Audit Department were in line

with the industry . I t also came

up wi th some recommendat ions

f o r f u r t h e r i m p r o v e m e n t . T h e

Audit Committee agreed to those

recommendations and the Internal

Audit Department was tasked to

implement necessary measures in

tha t rega rd to fu r the r enhance

the effect iveness of the Group’s

internal audit function.

Six Audit Committee meetings

were held during the year with

an average attendance rate of

95%.


CoRpoRategoveRnanCe

T h e C o m p a n y w a s g r a n t e d a S p e c i a l M e n t i o n A w a r d b y t h e j u d g e s o f B e s t Corporate Governance Disc losure Awards 2 0 0 6 o r g a n i s e d b y t h e H o n g K o n g Institute of Certified Public Accountants, in recognition of our commitment to improving c o r p o r a t e g o v e r n a n c e a n d d i s c l o s u r e

• key performance indicators of the

Group and the designated senior

executives for year 2006;

• medium-term human resources

strategies of the Group and the

action plan for implementing these

strategies;

• important human resources policies

such as the “Succession Policy for

the Senior Positions of BOCHK”,

the “Pe r fo rmance Eva lua t ion

Method for the Executives Directly

Supervised by the Board”, “Staff

Code of Conduct”, the “Reform of

Compensation Structure” and so

on;

• reports on self-evaluation of the

Board and Board Committees,

which were organised and analysed

by the Committee. The Committee

also made recommendations to

the Board regarding the results of

the self-evaluation, with a view

to further enhancing the role and

effectiveness of the Board and

Board Committees; and

• m a t t e r s r e l a t i n g t o t h e

appointment of independent non-

executive Directors to the boards

of certain major subsidiaries of the

Group.

Pursuant to the “PolicyonDirectors’

Remunerat ion” adopted by the

Company in 2005, in recommending

the remuneration of Directors, the

C o m m i t t e e m a k e s re f e re n c e t o

companies of comparable business

type or scale, and the nature and

quantity of work at both Board and

Board Committee levels (including

frequency of meetings and nature of

agenda items) in order to compensate

Directors reasonably for their time and

efforts spent. No individual Director

is allowed to participate in the

procedures for deciding his/her

individualremunerationpackage.

The NominationandRemuneration

Committee also has the delegated

respons ib i l i t y to determine the

specific remuneration packages

of the executive Director and

des ignated senior execut ives .

Currently the principal components

o f the Company ’s remunera t ion

packages for the executive Director

and designated senior execut ives

include basic salary, discret ionary

bonus and other benefits in kind. A

significant portion of the executive

D i re c to r ’s o r de s i gna t ed s en i o r

e xe cu t i v e s ’ d i s c re t i ona r y bonus

is based on the Group’s and the

i nd i v idua l ’s pe r fo rmance du r ing

the year. The Committee reviews

and recommends to the Board the

annual performance targets for the

executive Director and designated

senior executives by reference to

the corporate goals and objectives

approved by the Board from time to

time. The Committee also reviews the

performance of the executive Director

and designated senior execut ives

against the targets set on an ongoing

bas is , and rev iews and approves

the i r spec i f i c performance-based

remuneration.

FiveNominationandRemuneration

Committee meetings were held

during the year with an average

attendancerateof93%.

RiskCommitteeThe Risk Committee currently has

four members, of whom two are

non-execut ive Di rectors and two

a re i n d e p e n d e n t n o n - e x e c u t i v e

Directors. To be in line with the best

corporate governance practices, in

March 2006, the Board appointed

Mr. Koh Beng Seng, the then newly

appointed independent non-executive

Director, as the Chairman of the Risk

Committee.





• formulation of the risk appetite

and risk management strategy of

the Group, and determination of

the Group’s risk profile;

• ident if icat ion, assessment and

management of mater ia l r i sks

faced by the various business units

of the Group;

• review and assessment of the

adequacy and effectiveness of the

Group’s risk management process,

system and internal control;

• review and monitor ing of the

Group’s compliance with the risk

management pol ic ies, process,

s y s t em and i n te r na l con t ro l ,

including the Group’s compliance

with requirements of prudence and

laws and regulations in business

development;

• review and approval of high-level

risk-related policies of the Group;

and


CoRpoRategoveRnanCe

• review of significant or high risk

exposures and transactions.

The work performed by the Committee

in 2006 included the following:

• review of risk management limits;

• review of Risk Management Policy

Statement, and a range of risk

management pol ic ies cover ing

credit risk, market risk, operational

risk and stress testing;

• review and recommendation to the

Board of the proposed approach to

calculate minimum capital charge

for credit and operational risks

under Basel II, and the approval of

the policies relating thereto;

• recommendations to the Board

for further enhancing the Group’s

risk management framework and

structure;

• review of significant or high risk

exposures and transactions; and

• r e v i e w o f p e r i o d i c r i s k

management reports.

S ix R i sk Commit tee meet ingswere held during the year with anaverageattendancerateof90%.

StrategyandBudgetCommitteeThe Strategy and Budget Committee

currently comprises five members,

of whom two are non-execut ive

Directors, two are independent non-

executive Directors, and one is the

Chief Executive and executive Director.

The Committee is chaired by Mdm.

Yang Linda Tsao, an independent non-

executive Director.





• review and monitor ing of the

Group’s long term strategy;

• r e v i e w o f t h e p r o c e s s f o r

formulat ing the Group’s long

term strategy to ensure that it

is sufficiently robust to take into

account the appropriate range of

alternatives;

• monitoring of the implementation

of the Group’s long term strategy

t h ro u g h a g re e d m e t r i c s a n d

offering of strategic guidance to

the Management;

• making of recommendations to the

Board on the major investments,

capital expenditure and strategic

commitments of the Group and

monitoring of the implementation

of the same; and

• review and monitoring of the Group’s

regular/periodic (including annual)

business plan and financial budget.

During the year, the Strategy and

B u d g e t C o m m i t t e e g u i d e d a n d

m o n i t o r e d t h e M a n a g e m e n t ’s

i m p l e m e n t a t i o n o f t h e G ro u p ’s

2006-2011 Strategic Plan as approved

by the Board in 2005. The Committee

also played a prominent role in driving

the formulation of the Group’s key

business strategies, including those for

the development of China business,

SME business, wealth management

business, global market business and

treasury business. The Committee

monitored the implementation of the

Group’s budget and business plan

for 2006. In planning for 2007, the

Committee reviewed and endorsed

the Group’s 2007 financial budget and

business plan, and recommended the

same to the Board for approval.

F i v e S t r a t e g y a n d B u d g e tCommittee meetings were heldduring the year with an averageattendancerateof92%.

Directors’SecuritiesTransactionsThe Company ha s adop ted t he

“Code for Securit ies Transactions

by Directors” to govern securities

transactions by Directors. The terms

of the said Code are more stringent

than the mandatory standards set out

in the “Model Code for Securities

Transactions by Directors of Listed

Issuers” contained in Appendix 10 of

the Listing Rules. Further, following

the listing of the Company’s parent

company, Bank of China Limited, in

June 2006, the Code has been revised

so that the requirements set out

therein apply equally to the Director’s

dealings in the securities of BOC. In

this connection, the Company had

made specific enquiry of all Directors,

who confirmed that they had complied

with the standards set out in both the

Company’s Code and the said Model

Code throughout year 2006.

ExternalAuditorsPursuant to the “Policy on External

Auditors” approved by the Board in

2005, the AuditCommittee reviewed

and monitored and was satisfiedwiththe independence and objectivityo f P r i c e w a t e r h o u s e C o o p e r s ,

the Group’s external auditors, andthe effectiveness of their auditprocedures.

The Audit Committee was satisfied

tha t the non-aud i t s e r v i ce s d id

not a ffec t the independence o f

P r i c e w a t e r h o u s e C o o p e r s . T h e

n o n - a u d i t s e r v i c e f e e s p a i d t o

Pr icewaterhouseCoopers in 2006

comprised mainly the tax-re lated

services fee of HK$2.4 million and

the due di l igence fee of HK$4.9

million.

InternalControlThe Board has the responsibility to

ensure that the Group maintains

sound and effective internal controls

to safeguard the Group’s assets.

S t a r t i ng f rom 2005 , the Group

conducts an annual review of the

effectiveness of its internal control

systems covering all material controls,

including financial, operational and

compliance controls as well as risk

management. The review is conducted


CoRpoRategoveRnanCe

by making reference to the guidelines

and definitions given by the regulatory

and profess iona l bod ies fo r the

purpose of assessing five different

internal control elements, namely, the

control environment, risk assessment,

control activities, information and

communicat ion, and moni tor ing.

The assessment covers all the major

in te r na l cont ro l s and measures ,

including financial, operational and

compliance controls as well as risk

management functions.

The Audit Committee and theBoard considered that the keyareas of the Group’s internalcontrol systems were reasonablyimplemented to prevent material

misstatement or loss, safeguard the

Group’s assets, maintain appropriate

accounting records, ensure compliance

with applicable laws and regulations,

as well as fulfill the requirements of

the Code regarding internal control

systems in general.

CommunicationwithShareholdersandShareholders’Rights

The Board attaches a high degreeo f i m p o r t a n c e t o c o n t i n u o u scommunication with shareholders,

especially direct dialogue with them

at the Company’s annual general

meetings. Shareholders are therefore

encouraged to actively participate at

such meetings.

The Chairmen of the Board and all

Board Committees, and representatives

of Pr icewaterhouseCoopers were

present at the Company’s 2006 annual

general meeting held on 26 May

2006 at the Hong Kong Convention

and Exhibition Centre to respond to

questions and comments raised by

shareholders.

The Board is aware of investors’

concern regard ing the potent ia l

d i l u t i o n o f t h e s h a r e h o l d e r s ’

value arising from the exercise of

power pursuant to the grant of a

general mandate to issue shares to

the Board. Given its commitment

to h igh s t anda rds o f co rpo ra te

governance, the Board announced

at the 2006 annual general meeting

certain internal policies for theexercise of the powers grantedto the Board under the generalmandates to issueand repurchaseshares to safeguard shareholders’

r ights. The Board has resolved to

adopt the same po l i c ies i f i t i s

granted by the shareholders the

gene ra l manda te s t o i s sue and

repurchase shares at the 2007 annual

general meeting.

In order to enhance the transparency

of shareho lders ’ vot ing, al l there s o l u t i o n s p ro p o s e d a t t h eCompany’s 2007 annual generalmeeting will be voted on by poll as in previous years. The Company

has engaged Computershare Hong

Kong Investor Services Limited, the

Company’s Share Registrar, to act

as the scrutineer for such purpose.

The results of the poll voting will be

published in the press and on the

Company’s website at www.bochk.com

and the Stock Exchange’s website at

www.hkex.com.hk on the following

business day.

I n o rde r t ha t s ha reho lde r s c an

have a better understanding of the

agenda i tems to be discussed at

the 2007 annual general meeting

a n d t o e n c o u r a g e t h e i r a c t i v e

participation so that exchange of

views and communication can be

further enhanced, the Company hasprovided detailed information onthe 2007 annual general meetingin a circular which is despatched

together with this Summary Financial

Report to the shareholders.

Further shareholder information is set

out in the “Shareholder Information”

section of this Summary Financial

Report. Shareholders who wish to raise

any queries with the Board may write

to the Company Secretary at 52nd

Floor, Bank of China Tower, 1 Garden

Road, Hong Kong.

Directors’ResponsibilityStatementinrelationtoFinancialStatements

The following statement should be

read in conjunction with the auditors’

statement of their responsibi l it ies

as set out in the auditors’ report


Repo r t . The s t a t ement i s made

w i t h a v i e w t o d i s t i n g u i s h i n g

fo r sha reho lde r s t he re spec t i v e

responsibilities of the Directors and

of the auditors in relation to the

financial statements.

The Directors are required by the

Hong Kong Companies Ordinance

to prepare f inanc ia l s ta tements ,

which give a true and fair view of

the state of affairs of the Company.

The financial statements should be

prepared on a going concern basis

unless it is not appropriate to do so.

The Directors have responsibility for

ensuring that the Company keeps

accounting records which disclose

with reasonable accuracy at any time

the financial position of the Company

and which enable them to ensure that

the financial statements comply with

the requirements of the Hong Kong

Companies Ordinance. The Directors

also have general responsibilities for

taking such steps as are reasonably

open to them to safeguard the assets

of the Group and to prevent and

detect fraud and other irregularities.

T h e D i r e c t o r s c o n s i d e r t h a t i n

preparing the financial statements


Report, the Company has adopted

appropriate accounting policies which

have been consistently applied with

the support of reasonable and prudent

judgements and estimates, and that

all accounting standards which they

consider to be applicable have been

followed.



Offer



rewarding career opportunities and cultivate staff commitment

We encouraged our staff members to take part in community services and charity activities, e.g. the Olympic Day Run 2006


Our peOpLe

Staff are cornerstone for corporate

growth and development. During

t h e y e a r o f 2 0 0 6 , w e h a v e

continued our efforts in enhancing

h u m a n re s o u rc e s m a n a g e m e n t ,

recruitment procedures and staff

training programmes, a reflection

of our emphasis on “Respect” to

s ta ff . Fur ther promot ion on the

Group’s corporate culture has also

been carried out to stress the core

value of “Teamwork”. We believe

that a generally recognised culture

i s ind i spensab le for bet ter s ta ff

relationship, which in turn, helps

promote business development.

ReformingHumanResourcesMechanismAccording to the Group’s business

development strategy, the Group

has been continually enhancing its

human resources and compensation

p o l i c i e s o n t h e j o b - b a s e d a n d

performance-driven human resources

management platform. Addit ional

r e s o u r c e s w e r e a l s o a l l o c a t e d

to award those employees w i th

excellent performance, so as to retain

and attract talents.

Moreover, to enable the job-based system

to support the Group’s development,

we have reviewed the organisation

structures and job establishments during

the year. By means of rationalising

job establishments and developing

professional job series, the Group has

enabled the employees to fully realise

their potential and develop their careers,

aiming at driving business growth

through stronger staff motivation.

FosteringCorporateCultureThe main theme for promotion of 2006

corporate culture was “Teamwork”,

which came alongside with the activities

related to “Social Responsibility” and

“Respect” started in 2005. During the

year, BOCHK Volunteers Team has

been established, and a number of

voluntary activities were organised,

such as beach cleaning activity,

children’s home and elderly visits.

In order to recognise those units

which have outstanding performance

in promoting team spirit, we have

launched the “Teamwork Activities

Rewards Scheme”. Under this

scheme, “The Departmental Award”

and “The Cross-departmental Team

Award” were set up to encourage

organisation of teamwork activities

by individual units, and to strengthen

staff communication and cohesion

among different functional units.

As a solicitous employer, we took many

initiatives to show our care for staff.

“Caring Ambassadors for new staff”

program was launched and free medical

check up was arranged. We have also

compiled an Information Guide which

contained service premium and other

useful information for distribution to all

staff members.

RecruitingTalentsThe Group advocates recruiting talents

to cope with the manpower demand

in line with our business development

and expansion. In 2006, by using

various recruitment channels, quality

professionals were hired and deployed

for various business and functional

units, whilst fulfilling the manpower

needs from front to back offices.

In addition, more focus was put on

recruitment in tertiary institutions, in

order to recruit high-flyers to replenish

our talent pool.

BOCHK Volunteer Team was organised to echo one of our important core values – Social Responsibility

6�

ouRpeople


Apart from capitalising on local talent

resources, we also conducted candidate

search in the Mainland of China and

overseas in order to build an international

working team. At the same time, through

a series of work-flow improvement

on recruitment procedures and the

adoption of scientific assessment tools,

the efficiency and effectiveness of staff

recruitment was significantly increased,

leading to a stronger human capital

base for the Group.

StrengtheningStaffTrainingIn 2006, we provided 1,500 courses

w i th 92 ,000 a t t endance s . W i th

the ob jec t i ve o f enhanc ing ou r

competit iveness to become a top

qua l i t y f inanc ia l se rv i ces g roup,

o u r t r a i n i n g p ro g r a m m e s w e re

designed with targets to meet the

Group’s development strategy and

overall human resources plans; to

help staff ’s self improvement and

career development, and to build

up a learning organisation. Major

training activities included a series of

workshops and seminars covering risk

management, legal and compliance,

corporate governance, and corporate

activities, promoting a sense of “Social

Responsibility” and good corporate

citizenship among staff.

As to provide healthy activities to the

staff, various kinds of recreational

activities were held in 2006, including

spring time staff gathering, Ocean

Park Carnival, outward bound training,

exchange activities for different sport

teams and leisure classes for staff.

We organised a diverse range of staff recreational and sports activities, like choir performance and Dragon Boat Competition

cultures; sales and serv ices ski l l s

development sessions, and leadership

deve lopment cou r se s fo r sen io r

management. Moreover, Management

Tr a i nee P rog ramme and O ff i c e r

Trainees Programme were provided to

fresh university graduates. In addition,

efforts have been taken to establish an

e-learning platform to assist training,

whi le the launch of self- learning

programmes created a dynamic and

diversified channel, making training

more accessible and flexible.

PromotingStaffCommunicationThe Group has strived for effective

two-way communications between

staff and the management, as well

as among staff of different units

through various channels. Award

P resenta t ion Ceremony was

held in order to recognise staff

contributions and achievements

for the year 2005. A total of

607 staff and 43 teams had been

granted outstanding performance

awards. We also encouraged our

staff members to take part in

community services and charity


gOOD COrpOrate CitizensHip

Having been serving Hong Kong for 90

years, Bank of China (Hong Kong) has

long been aware that good corporate

citizenship is of great significance

underpinning our success. Through

cont inuous cooperat ion with the

BOCHK Charitable Foundation (the

“Foundation"), we are committed to

contributing to the well-being of the

community we serve by proactively

supporting and initiating a wide range

of activities on culture and education,

sports and recreation, medical and

health care, environmental protection,

social welfare and assistance to the

needy. In recognition of our good

corporate citizenship, the Hong Kong

Council of Social Service named the

Group the Caring Company in 2006

for the fourth consecutive year.

NurturingNewGenerationEducation and nurturing the younger

gene ra t i on rema in s one o f t he

principal areas of support of the

Foundation.

In 2006, the Foundation awarded

scholarships and bursaries amounting

t o H K $ 1 . 0 7 m i l l i o n t o a l l t h e

universities and tertiary education

institution in Hong Kong, bringing the

total number of benefited students to

985 and the total contribution value to

HK$9.44 million since 1990.

To s t r e n g t h e n t h e t r a i n i n g o f

management and leadership skills of

our younger generation, we sponsored

the “Junior Police Call Leadership

and Management Training Project”

organised by the Hong Kong Police.

The project provides 161 c lasses

for more than 6,400 part ic ipants

in 2006 and 2007. With an aim of

promoting the message of road safety

among young people, the Foundation

supported the Hong Kong Police to

organise the “Bank of China (Hong

Kong) – Hong Kong Police Youth Road

Safety Quiz”. The online quiz was

well-received with nearly 100,000

entries.

In view of the increasing economic

integration between Hong Kong and

the Mainland of China, the Group

organised for the second year the

Internship Programme for Financial

Profess ionals in the Mainland of

Ch ina , wh ich enab led un ive r s i t y

students in Hong Kong to gain a

better understanding of the latest

development of the Mainland economy

and finance by undertaking a 4-week

internship at the Bank of China

Shanghai Branch in the summer of

2006.

SupportingSportsDevelopmentWe are dedicated to promoting sports

development in order to encourage the

public to lead a healthy way of life.

The Foundation continued its long-

s t and ing suppo r t to badmin ton

training in Hong Kong through the

g e n e r a l 2 0 0 5 - 2 0 0 8 H o n g K o n g

Badminton Development & Training

Scheme and a number of initiatives

including Hong Kong Open Badminton

C h a m p i o n s h i p s , H o n g K o n g

Youth Badminton Championships ,

Badminton Star Award , Regional

Badminton Tra in ing P rogramme ,

School Badminton Promotion Scheme,

Badminton Doub les League cum

Family Fun Day. In the past seven

years, more than 460,000 participants

bene f i t ed f rom the S cheme . I n

2006, the Foundat ion sponsored

Olympic Junior Ambassador team

to visit Guangzhou for a training

and exchange programme. It also

sponsored the badminton event in the

Our Internship Programme for Financial Professionals in the Mainland of China enables university students to gain better insight of the Mainland economy

Our sponsorship of Junior Pol ice Cal l Leadership and Management Training Project helps strengthening the management and leadership skills of our younger generation

�1

gooDCoRpoRateCitizenship


for the Show Jumping Event in the

Equestrian Events, aiming to arouse

and promote interests in the 2008

Olympics Eques t r ian Events by

means of a creative art design

competition.

While giving high recognition

to the excellent achievements

o f t h e H o n g K o n g s p o r t s

e l i tes , we a lso advocate a

s p o r t i n g l i f e s t y l e a n d t h e

“sports for a l l” message to

the public. Organised by the

Sports Federation & Olympic

C o m m i t t e e o f H o n g

Kong, China, the Bank

of China Hong Kong

Sports Stars Awards

and the Olympic Day

Run were launched

w i t h t h e s t r o n g

support from BOCHK.

PromotingEnvironmentalProtectionThe Foundation spared no effort in

enhancing environmental awareness

2006 Corporate Games. Cash awards

were also presented to Hong Kong

badminton medalists in recognition of

their remarkable achievements at the

15th Asian Games Doha 2006.

In order to help Hong Kong’s young

athletes pursue sporting excellence,

t h e F o u n d a t i o n c o n t i n u e d i t s

s pon so r sh i p o f t he Hong Kong

Is land & Kowloon Regional Inter-

school Sports Competition and the

competition’s top-honour award, the

BOCHK Bauhinia Bowls Award . A

total of 45,000 athlete enrolments

from over 270 schools participated in

8,200 matches of this competition.

The 2008 Olympics and Paralympics

in Bei j ing and the co-host ing of

t h e E q u e s t r i a n E v e n t s i n H o n g

Kong create a golden opportunity

for foster ing sports development

i n Hong Kong . The Founda t i on

introduced a brand new Olympic

E q u e s t r i a n Tr a i n i n g C o u r s e f o r

t eache r s i n Sep tember in o rde r

to enhance the knowledge and

appreciat ion of equestr ian sports

by teacher s and the i r s tudents .

The Group also fully supported the

Jumping Fence Design Competition

Both Bank of China Tower (in Central) and Bank of China Centre (in Olympian City) received the Indoor Air Quality Certificate (Excellent Class) granted by the Environmental Protection Department

The Green School Award helps spread the environmental awareness among teachers, students and their parents

We sponsored the Bank of China Hong Kong Sports Stars Awards 2006 to recognise the excellent achievements of the Hong Kong sports elites

��

gooDCoRpoRateCitizenship


and promoting green lifestyle among

teachers, students and their parents

through the Sixth Green School Award

in 2006. Three new programmes,

namely, Power Saving Act ion for Schools, Environmental Shopping Bag Design Competition, and Green Lunch Campaign were held in the school

year. Since 2000, the number of Green Schools amounted to 198 with over

1,013 participating schools.

Apart from raising public awareness,

the Foundation also sponsored the

Hong Kong Tree Planting Day 2006

held at Pak Tam Chung in Sai Kung.

Among the 2,000 participants, about

300 were volunteer staff of the Group

and their family members.

To help save the environment and

facilitate computer learning of the

needy students, the Group donated

refurbished computers and related

accessories to the “Home-School-

Commun i t y Compute r Dona t i on

Campaign” of the Computer Recycling

Scheme organised by the Education

and Manpower Bu reau and the

Hong Kong Council of Social Service.

The Group’s staff volunteers helped

refurbish the computers. The Group

also participated in the One Company-

One Year-One Environmental Project

of the Federat ion of Hong Kong

Industr ies and committed to the

implementat ion of environmental

projects within our workplace.

BringingCulturalEnrichmentThe Group is committed to promoting

arts and cultural development in Hong

Kong. The Group, together with the

Hong Kong Philharmonic Orchestra,

also brought Mozart in the City that

marked the 250th anniversary of

Mozart’s birth to the audience. To

enable people from different walks of

life to preview the Mozart concerts, we

organised two Mini-Mozart Concerts at

both the Bank of China Tower for our

staff, tenants and the Times Square for

the general public. All of these were

well-received by the audience.

To enable the public to enjoy the

d i s t inct ar tworks f rom the VICEVERSA: displacing Acts, Lives and Thresholds of a Hyper City presented

by the Hong Kong I n s t i t u t e o f

Architects and the Hong Kong Arts

Development Council at the 10th Venice Architectural Biennale, the

Group helped staging the Hong Kong

Response Exhibition in November at

the Bank of China Tower.

Le French May – The Pace of Nature, Oil Paintings by Claire Basler held in

May was the second time we staged

an international painting exhibition at

the Bank of China Tower.

HelpingtheNeedyDuring the year, the Foundation joined

hands with the Hong Kong Red Cross

Blood Transfusion Service again to

organise the Blood Donation Week.

A total of 915 people donated blood

at the Bank of China Tower, Bank

of China Centre and City One Plaza.

Among them, 224 came from the

Group’s staff members.

In 2006, the Group provided financial

support and actively participated in

a wide variety of charitable activities

such as Treasure Hunt Corporate Challenge, Run-up Two IFC Charity Race 2006, Be A Star Charity Christmas Lunch, Charity Soccer Match for Yan Chai Hospital and MTR Hong Kong Race Walking 2006. We are also the

Diamond Sponsor of Po Leung Kuk for

nine consecutive years.

During the year, we sent out 2.83

m i l l i o n i n s e r t s o f 9 c h a r i t a b l e

organisat ions in bank statements

of customers.

Our support of the Hong Kong Response Exhibition of the 10th Venice Architectural Biennale allowed the general public to enjoy the distinct architectural artworks

73Summary Financial Report 2006 BOC Hong Kong (Holdings) Limited

74 Consolidated Income Statement

75 Consolidated Balance Sheet

76 Notes to the Summary Financial Statements

102 Connected transactions

103 Reconciliation between HKFRSs vs IFRS/PRC GAAP

106 Auditor’s Statement on the Summary Financial

Report

CONSOLIDATED INCOME STATEMENT

74 Summary Financial Report 2006BOC Hong Kong (Holdings) Limited

Restated

2006 2005

For the year ended 31 December Note HK$’m HK$’m

Interest income 40,271 26,177

Interest expense (24,436) (13,053)

Net interest income 15,835 13,124

Fees and commission income 4,985 4,006

Fees and commission expenses (1,268) (1,061)

Net fees and commission income 3,717 2,945

Net trading income 1,888 1,446

Net loss on investments in securities (5) (96)


Other operating income 334 487

Total operating income 27,964 21,536

Net insurance benefits and claims (6,655) (3,362)

Net operating income before loan impairment allowances 21,309 18,174

Reversal of loan impairment allowances 1,790 2,645

Net operating income 23,099 20,819

Operating expenses (6,558) (5,771)

Operating profit 16,541 15,048

Net (loss)/gain from disposal/revaluation of

properties, plant and equipment (12) 50

Net gain from disposal of/fair value adjustments on

investment properties 605 1,400

Share of profits less losses of associates 5 4

Profit before taxation 17,139 16,502

Taxation (2,855) (2,646)

Profit for the year 14,284 13,856

Attributable to:

Equity holders of the Company 14,007 13,596

Minority interests 277 260

14,284 13,856

Dividends 8,966 8,543

HK$ HK$

Earnings per share for profit attributable to the

equity holders of the Company 3 1.3248 1.2859

The notes on pages 76 to 101 are an integral part of these Summary Financial Statements.

CONSOLIDATED BALANCE SHEET


Restated

2006 2005

As at 31 December Notes HK$’m HK$’m

ASSETSCash and balances with banks and other financial institutions 30,973 30,704Placements with banks and other financial institutions 130,636 125,862Trading securities and other financial instruments at fair value

through profit or loss 28,294 20,365Derivative financial instruments 7,393 5,184Hong Kong SAR Government certificates of indebtedness 34,750 32,630Advances and other accounts 352,858 338,403Investment in securities

– Available-for-sale securities 100,389 52,243– Held-to-maturity securities 165,588 178,521– Loans and receivables 36,114 13,080

Interests in associates 60 61Properties, plant and equipment 5 19,740 18,491Investment properties 6 7,481 7,626Deferred tax assets 7 69 68Other assets 14,608 7,764

Total assets 928,953 831,002

LIABILITIESHong Kong SAR currency notes in circulation 34,750 32,630Deposits and balances of banks and other financial institutions 49,034 40,655Trading liabilities and other financial instruments at fair value

through profit or loss 12,629 7,924Derivative financial instruments 4,052 4,193Deposits from customers 694,691 632,658Certificates of deposit issued

– at fair value through profit or loss 2,498 3,829– at amortised cost – 136

Insurance contract liabilities 14,239 7,968Current tax liabilities 1,128 889Deferred tax liabilities 7 3,391 3,055Other accounts and provisions 25,901 15,352

Total liabilities 842,313 749,289

EQUITYShare capital 8 52,864 52,864Reserves 9 31,791 27,071

Capital and reserves attributable to the equity holdersof the Company 84,655 79,935

Minority interests 1,985 1,778

Total equity 86,640 81,713

Total liabilities and equity 928,953 831,002

The notes on pages 76 to 101 are an integral part of these Summary Financial Statements.

Approved by the Board of Directors on 22 March 2007 and signed on behalf of the Board by:

XIAO Gang HE GuangbeiDirector Director

NOTES TO THE FINANCIAL STATEMENTS


1. Basis of preparationThese Summary Financial Statements have been prepared from the Annual Financial Statements of the BOC

Hong Kong (Holdings) Limited (“Annual Financial Statements”) for the year ended 31 December 2006.

The Annual Financial Statements of the Group have been prepared in accordance with Hong Kong Financial

Reporting Standards (HKFRSs is a collective term which includes all applicable individual Hong Kong Financial

Reporting Standards, HKASs and Interpretations) issued by the HKICPA, accounting principles generally

accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. These financial

statements also comply with the requirements set out in the guideline on “Financial Disclosure by Locally

Incorporated Authorized Institutions” under the Supervisory Policy Manual issued by the HKMA and the

applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange.

The Annual Financial Statements have been prepared under the historical cost convention, as modified by the

revaluation of available-for-sale securities, financial assets and financial liabilities (including derivative financial

instruments) at fair value through profit or loss, investment properties which are carried at open market value

and premises which are carried at open market value or revalued amount less accumulated depreciation and

accumulated impairment losses.

2. Financial risk managementThis note summarises the Group’s control of credit risk, market risk, interest rate risk and liquidity risk, and

presents financial information about the exposure to the use of financial instruments.

Credit risk management

Credit risk is the risk that a customer or counterparty will be unable to or unwilling to meet a commitment it

has entered into with the Group. RMD, under the supervision of the CRO, provides centralised management of

credit risk within the Group. Different credit approval and control procedures are adopted according to the

level of risk associated with the customer or transaction. Corporate credit applications are independently

reviewed and objectively assessed by risk management units. A credit scoring system is used to process retail

credit transactions, including residential mortgage loans, personal loans and credit cards. The Credit Risk

Assessment Committee comprising experts from credit and other functions of the Group is responsible for

making an independent assessment of all credit facilities which require the approval of Deputy Chief

Executives or above.

The Group adopts an eight-grade facility grading structure according to HKMA’s loan classification

requirement. RMD provides regular credit management information reports and ad hoc reports to the

Management Committee, RC, AC and Board of Directors.



2. Financial risk management (continued)Market risk management

Market risk is the risk of loss that results from movements in market rates and prices. The Group’s market risk

arises from customer-related business and proprietary trading. Trading positions are subject to daily marked-

to-market valuation. Market risk is managed within the risk limits approved by the RC. The overall risk limits

are divided into sub-limits by reference to different risk factors, including interest rate, foreign exchange rate,

commodity price and equity price.

RMD is responsible for the oversight of the Group’s market risk to ensure that overall and individual market

risks are within the Group’s risk tolerance. Risk exposures are monitored on a day-to-day basis to ensure that

they are within established risk limits.

Interest rate risk management

The Group’s interest rate risk exposures are mainly structural. The major types of interest rate risk from

structural positions are:

repricing risk – mismatches in the maturity or repricing periods of assets and liabilities

basis risk – different pricing basis for different transactions so that yield on assets and cost of

liabilities may change by different amounts within the same repricing period

The Group’s ALCO maintains oversight of interest rate risk and RC sanctions the interest rate risk management

policies formulated by ALCO. The interest rate risk is identified and measured on a daily basis. The Treasury

Department manages the interest rate risk according to the established policies. The Finance Department

closely monitors the related risks and the results are reported to RC and ALCO regularly.

Gap analysis is one of the tools used to measure the Group’s exposure to repricing risk. This provides the

Group with a static view of the maturity and repricing characteristics of its balance sheet positions. The Group

uses interest rate derivatives to hedge its interest rate exposures and in most cases, plain vanilla interest rate

swaps are used.

Sensitivities of earnings and economic value to interest rate changes (Earnings at Risk and Economic Value at

Risk) are assessed through a hypothetical interest rate shock of 200 basis points across the yield curve on both

sides. Earnings at Risk and Economic Value at Risk are controlled respectively within an approved percentage

of the projected net interest income for the year and the latest capital base as sanctioned by RC. The results

are reported to ALCO and RC on a regular basis.

The impact of basis risk is gauged by the projected change in net interest income under scenarios of imperfect

correlation in the adjustment of the rates earned and paid on different instruments. Ratios of assets to

liabilities with similar pricing basis are established to monitor such risk.



2. Financial risk management (continued)Liquidity risk management

The aim of liquidity management is to enable the Group to meet, even under adverse market conditions, all its

maturing repayment obligations on time and to fund all its asset growth and strategic opportunities without

forced liquidation of its assets at short notice.

The Group funds its operations principally by accepting deposits from retail and corporate depositors. In

addition, the Group may issue certificates of deposit to secure long-term funds. Funding may also be secured

through adjusting the asset mix in the Group’s investment portfolio. The Group uses the majority of funds

raised to extend loans, to purchase debt securities or to conduct interbank placements.

The Group monitors the liquidity risks using cash flow analysis and by examining deposit stability,

concentration risk, mismatch ratios, loan-to-deposit ratio and liquidity profile of the investment portfolio. The

primary objective of the Group’s asset and liability management strategy is to achieve optimal returns while

ensuring adequate levels of liquidity and capital within an effective risk control framework and ALCO is

responsible for establishing these policy directives (including the liquidity contingency plan), and RC sanctions

the liquidity management policies. The Treasury Department manages the liquidity risk according to the

established policies. The Finance Department monitors the Group’s liquidity risks and reports to the

management and ALCO regularly.



2. Financial risk management (continued)(A) Geographical concentrations of assets, liabilities and off-balance sheet items

The following note incorporates the requirements on risk disclosures of HKAS 32 and geographical

concentrations of risk of HKAS 30, based on the location of the subsidiary, associate or branch in

which the related item is recorded.

Capital expenditure is shown by the geographical area in which the buildings and equipment are

located.

2006

Net

operating

income

Contingent before

liabilities loan

Total Total and impairment Capital

assets liabilities commitments allowances expenditure

HK$’m HK$’m HK$’m HK$’m HK$’m

Hong Kong 912,699 833,480 172,404 20,679 726

Mainland China 15,525 8,122 15,189 609 9

Others 729 711 188 21 1

928,953 842,313 187,781 21,309 736

2005

Net

operating

income

Contingent before

liabilities loan

Total Total and impairment Capital

assets liabilities commitments allowances expenditure

HK$’m HK$’m HK$’m HK$’m HK$’m

Hong Kong 808,614 744,413 146,072 17,650 562

Mainland China 21,838 4,508 15,498 500 7

Others 550 368 112 24 –

831,002 749,289 161,682 18,174 569



2. Financial risk management (continued)(B) Currency risk

Tables below summarise the Group’s exposure to foreign currency exchange rate risk as at 31

December. Included in the tables are the Group’s assets and liabilities at carrying amounts in HK$

equivalent, categorised by the original currency.

2006

US HK Japanese PoundRenminbi Dollars Dollars EURO Yen Sterling Others Total

HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m

AssetsCash and balances with banks

and other financial institutions 24,474 3,365 2,676 126 183 56 93 30,973Placements with banks and other

financial institutions 707 35,142 89,781 947 497 768 2,794 130,636Trading securities and other

financial instruments at fairvalue through profit or loss – 8,598 17,644 1,041 – – 1,011 28,294

Derivative financial instruments – 203 7,190 – – – – 7,393Hong Kong SAR Government

certificates of indebtedness – – 34,750 – – – – 34,750Advances and other accounts 4,559 54,737 285,796 2,505 1,678 1,001 2,582 352,858Available-for-sale securities – 58,627 29,012 4,200 – 2,118 6,432 100,389Held-to-maturity securities – 98,960 45,780 3,815 – 1,790 15,243 165,588Loans and receivables – 2,556 32,909 – – 302 347 36,114Interests in associates – – 60 – – – – 60Properties, plant and equipment 69 1 19,670 – – – – 19,740Investment properties – – 7,481 – – – – 7,481Other assets (including deferred

tax assets) 59 294 13,818 99 122 85 200 14,677

Total assets 29,868 262,483 586,567 12,733 2,480 6,120 28,702 928,953

LiabilitiesHong Kong SAR currency notes

in circulation – – 34,750 – – – – 34,750Deposits and balances of banks

and other financial institutions 17,198 16,587 12,590 1,112 415 97 1,035 49,034Trading liabilities and other

financial instruments at fairvalue through profit or loss – 3,342 9,287 – – – – 12,629

Derivative financial instruments – 450 3,602 – – – – 4,052Deposits from customers 10,994 143,913 485,066 5,893 3,609 11,968 33,248 694,691Certificates of deposit issued – 987 1,511 – – – – 2,498Insurance contract liabilities – 2,130 12,109 – – – – 14,239Other accounts and provisions

(including current and deferredtax liabilities) 451 8,369 20,497 274 131 92 606 30,420

Total liabilities 28,643 175,778 579,412 7,279 4,155 12,157 34,889 842,313

Net on-balance sheet position 1,225 86,705 7,155 5,454 (1,675) (6,037) (6,187) 86,640

Off-balance sheet net notionalposition* 54 (83,503) 77,982 (5,501) 1,817 6,012 6,433 3,294

Contingent liabilities andcommitments 2,666 42,196 137,875 2,643 527 117 1,757 187,781

* Off-balance sheet net notional position represents the net notional amounts of foreign currency derivative financial instruments, which are

principally used to reduce the Group’s exposure to currency movements.



2. Financial risk management (continued)(B) Currency risk (continued)

2005

US HK Japanese PoundRenminbi Dollars Dollars EURO Yen Sterling Others Total



and other financial institutions 22,730 4,752 2,697 153 154 103 115 30,704Placements with banks and other

financial institutions 262 35,833 82,389 371 – 3,064 3,943 125,862Trading securities and other

financial instruments at fairvalue through profit or loss – 6,549 11,099 1,209 – – 1,508 20,365

Derivative financial instruments – 874 4,310 – – – – 5,184Hong Kong SAR Government

certificates of indebtedness – – 32,630 – – – – 32,630Advances and other accounts 1,961 47,896 279,042 3,738 2,423 831 2,512 338,403Available-for-sale securities – 26,033 19,283 2,414 – 1,011 3,502 52,243Held-to-maturity securities – 101,694 57,640 4,003 243 1,288 13,653 178,521Loans and receivables – 1,704 9,778 – – – 1,598 13,080Interests in associates – – 61 – – – – 61Properties, plant and equipment 61 – 18,430 – – – – 18,491Investment properties – – 7,626 – – – – 7,626Other assets (including deferred

tax assets) 19 744 7,025 – – 9 35 7,832

Total assets 25,033 226,079 532,010 11,888 2,820 6,306 26,866 831,002


in circulation – – 32,630 – – – – 32,630Deposits and balances of banks

and other financial institutions 14,150 9,245 12,507 247 3,389 63 1,054 40,655Trading liabilities and other

financial instruments at fairvalue through profit or loss – 2,746 5,178 – – – – 7,924

Derivative financial instruments – 840 3,353 – – – – 4,193Deposits from customers 9,210 132,105 427,160 6,787 2,693 13,199 41,504 632,658Certificates of deposit issued – 1,325 2,640 – – – – 3,965Insurance contract liabilities – 1,019 6,949 – – – – 7,968Other accounts and provisions

(including current and deferredtax liabilities) 629 5,879 11,253 222 131 196 986 19,296

Total liabilities 23,989 153,159 501,670 7,256 6,213 13,458 43,544 749,289

Net on-balance sheet position 1,044 72,920 30,340 4,632 (3,393) (7,152) (16,678) 81,713

Off-balance sheet net notionalposition (5) (68,875) 48,257 (4,575) 3,392 7,146 16,811 2,151

Contingent liabilities andcommitments 1,558 34,600 121,423 1,945 812 50 1,294 161,682



2. Financial risk management (continued)(C) Interest rate risk

Tables below summarise the Group’s exposure to interest rate risk as at 31 December. Included in the

tables are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of

contractual repricing or maturity dates. The carrying amounts of derivative financial instruments which

are principally used to reduce the Group’s exposure to interest rate movements are under the column

captioned ‘Non-interest bearing’.

2006

Non-Up to 1 1-3 3-12 1-5 Over 5 interestmonth months months years years bearing TotalHK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m


and other financial institutions 24,894 – – – – 6,079 30,973Placements with banks and other

financial institutions 74,263 47,717 8,656 – – – 130,636Trading securities and other

financial instruments at fair

value through profit or loss 4,623 4,729 1,829 3,243 11,977 1,893 28,294Derivative financial instruments – – – – – 7,393 7,393Hong Kong SAR Government

certificates of indebtedness – – – – – 34,750 34,750Advances and other accounts 303,273 32,873 11,096 2,487 420 2,709 352,858Available-for-sale securities 5,578 14,102 5,402 27,529 47,728 50 100,389Held-to-maturity securities 25,050 38,721 32,265 41,105 28,447 – 165,588Loans and receivables 2,429 12,753 20,932 – – – 36,114Interests in associates – – – – – 60 60Properties, plant and equipment – – – – – 19,740 19,740Investment properties – – – – – 7,481 7,481Other assets (including deferred

tax assets) – – – – – 14,677 14,677

Total assets 440,110 150,895 80,180 74,364 88,572 94,832 928,953


in circulation – – – – – 34,750 34,750Deposits and balances of banks

and other financial institutions 44,271 955 2,692 – – 1,116 49,034Trading liabilities and other


value through profit or loss 6,025 3,603 2,946 55 – – 12,629Derivative financial instruments – – – – – 4,052 4,052Deposits from customers 565,717 77,894 21,891 996 18 28,175 694,691Certificates of deposit issued – – 514 1,984 – – 2,498Insurance contract liabilities – – – – – 14,239 14,239Other accounts and provisions

(including current and deferred

tax liabilities) 6,298 99 – – – 24,023 30,420

Total liabilities 622,311 82,551 28,043 3,035 18 106,355 842,313

Interest sensitivity gap (182,201) 68,344 52,137 71,329 88,554 (11,523) 86,640



2. Financial risk management (continued)(C) Interest rate risk (continued)

2005

Non-

Up to 1 1-3 3-12 1-5 Over 5 interest

month months months years years bearing Total

HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m


and other financial institutions 26,846 – – – – 3,858 30,704

Placements with banks and other

financial institutions 78,240 40,141 7,479 – – 2 125,862

Trading securities and other


value through profit or loss 3,243 3,908 2,015 3,495 7,348 356 20,365

Derivative financial instruments – – – – – 5,184 5,184

Hong Kong SAR Government

certificates of indebtedness – – – – – 32,630 32,630

Advances and other accounts 276,408 40,833 12,770 4,715 474 3,203 338,403

Available-for-sale securities 4,976 7,574 1,930 20,547 17,160 56 52,243

Held-to-maturity securities 27,990 46,049 34,953 53,587 15,942 – 178,521

Loans and receivables 3,466 3,351 6,263 – – – 13,080

Interests in associates – – – – – 61 61

Properties, plant and equipment – – – – – 18,491 18,491

Investment properties – – – – – 7,626 7,626

Other assets (including deferred

tax assets) – – – – – 7,832 7,832

Total assets 421,169 141,856 65,410 82,344 40,924 79,299 831,002


in circulation – – – – – 32,630 32,630

Deposits and balances of banks

and other financial institutions 34,444 1,709 3,015 – – 1,487 40,655

Trading liabilities and other


value through profit or loss 1,725 2,097 1,310 2,792 – – 7,924

Derivative financial instruments – – – – – 4,193 4,193

Deposits from customers 454,663 131,904 21,937 1,478 – 22,676 632,658

Certificates of deposit issued – 250 2,378 1,337 – – 3,965

Insurance contract liabilities – – – – – 7,968 7,968

Other accounts and provisions

(including current and deferred

tax liabilities) 4,911 – – – – 14,385 19,296

Total liabilities 495,743 135,960 28,640 5,607 – 83,339 749,289

Interest sensitivity gap (74,574) 5,896 36,770 76,737 40,924 (4,040) 81,713



2. Financial risk management (continued)(C) Interest rate risk (continued)

Tables below summarise the effective interest rate by major currencies for monetary financial

instruments not carried at fair value through profit or loss subject to interest rate risk as at 31

December:

2006

US HK Japanese Pound

Renminbi Dollars Dollars EURO Yen Sterling

% % % % % %

Assets

Cash and balances with banks

and other financial institutions 1.00 3.25 0.96 2.11 0.09 2.04


financial institutions 1.87 5.23 4.06 3.63 0.32 5.34

Advances to customers 5.86 6.25 5.21 4.92 1.61 5.17

Advances to banks and other

financial institutions – 5.57 4.12 3.78 0.72 –

Available-for-sale securities – 5.62 3.99 3.47 – 5.19

Held-to-maturity securities – 4.91 4.17 3.57 – 5.50

Loans and receivables – 5.30 3.90 – – 4.70

Liabilities



Deposits from customers 0.75 3.78 3.01 2.01 – 3.68

Certificates of deposit issued – 3.39 3.63 – – –

2005

US HK Japanese Pound

Renminbi Dollars Dollars EURO Yen Sterling

% % % % % %

Assets

Cash and balances with banks

and other financial institutions 0.99 3.34 0.83 0.82 – 1.35


financial institutions 1.05 4.22 4.10 2.40 – 4.58

Advances to customers 5.01 5.17 5.32 3.30 1.22 4.74

Advances to banks and other

financial institutions – 4.38 4.31 – 0.27 –

Available-for-sale securities – 4.92 3.81 2.91 – 4.61

Held-to-maturity securities – 4.12 4.03 2.92 0.23 4.68

Loans and receivables – 4.15 3.92 – – –

Liabilities



Deposits from customers 0.65 3.02 3.04 1.16 – 3.05

Certificates of deposit issued – 3.02 3.05 – – –



2. Financial risk management (continued)(D) Liquidity risk

Tables below analyse assets and liabilities of the Group as at 31 December into relevant maturity

groupings based on the remaining period at balance sheet date to the contractual maturity date.

2006

On Up to 1 1-3 3-12 1-5 Over 5demand month months months years years Undated Total



and other financial institutions 30,973 – – – – – – 30,973Placements with banks and other

financial institutions – 74,263 47,717 8,656 – – – 130,636Trading securities and other

financial instruments at fairvalue through profit or loss– debt securities

– certificates of deposit held – 10 104 279 875 1,454 – 2,722– others – 1,331 2,345 3,717 5,462 11,719 675 25,249

– equity securities – – – – – – 323 323Derivative financial instruments 6,218 537 217 109 274 38 – 7,393Hong Kong SAR Government

certificates of indebtedness 34,750 – – – – – – 34,750Advances and other accounts

– advances to customers 28,497 8,085 15,471 39,287 136,122 116,931 1,594 345,987– trade bills 76 1,670 1,030 350 – – 2 3,128– advances to banks and other

financial institutions – – 156 940 2,647 – – 3,743Available-for-sale securities

– debt securities– certificates of deposit held – 157 – 2,512 5,479 – – 8,148– others – 1,735 5,643 4,101 30,893 49,819 – 92,191

– equity securities – – – – – – 50 50Held-to-maturity securities

– debt securities– certificates of deposit held – 1,600 1,205 3,176 3,386 – – 9,367– others – 3,759 7,700 35,308 79,067 30,387 – 156,221

Loans and receivables – 2,429 12,753 20,932 – – – 36,114Interests in associates – – – – – – 60 60Properties, plant and equipment – – – – – – 19,740 19,740Investment properties – – – – – – 7,481 7,481Other assets (including deferred

tax assets) 4,185 9,773 2 247 131 163 176 14,677

Total assets 104,699 105,349 94,343 119,614 264,336 210,511 30,101 928,953


in circulation 34,750 – – – – – – 34,750Deposits and balances of banks

and other financial institutions 20,982 24,405 955 2,692 – – – 49,034Trading liabilities and other

financial instruments at fairvalue through profit or loss – 1,922 1,810 5,443 3,152 302 – 12,629

Derivative financial instruments 2,963 231 86 90 590 92 – 4,052Deposits from customers 289,650 304,216 77,585 22,272 950 18 – 694,691Certificates of deposit issued – – – 514 1,984 – – 2,498Insurance contract liabilities – – – – – 14,239 – 14,239Other accounts and provisions

(including current and deferredtax liabilities) 13,919 9,615 1,226 1,253 3,963 – 444 30,420

Total liabilities 362,264 340,389 81,662 32,264 10,639 14,651 444 842,313

Net liquidity gap (257,565) (235,040) 12,681 87,350 253,697 195,860 29,657 86,640



2. Financial risk management (continued)(D) Liquidity risk (continued)

2005

On Up to 1 1-3 3-12 1-5 Over 5demand month months months years years Undated Total



and other financial institutions 30,704 – – – – – – 30,704Placements with banks and other

financial institutions – 78,251 40,145 7,466 – – – 125,862Trading securities and other

financial instruments at fairvalue through profit or loss– debt securities

– certificates of deposit held – – 114 60 963 761 – 1,898– others – 140 1,320 2,001 7,502 7,172 – 18,135

– equity securities – – – – – – 332 332Derivative financial instruments 4,576 198 227 54 98 31 – 5,184Hong Kong SAR Government

certificates of indebtedness 32,630 – – – – – – 32,630Advances and other accounts

– advances to customers 25,368 6,710 16,133 31,534 132,520 118,015 2,029 332,309– trade bills 101 1,125 1,460 353 – – – 3,039– advances to banks and other

financial institutions 102 164 267 376 2,146 – – 3,055Available-for-sale securities

– debt securities– certificates of deposit held – 101 200 356 3,521 – – 4,178– others – 1,609 2,598 1,673 23,680 18,449 – 48,009

– equity securities – – – – – – 56 56Held-to-maturity securities

– debt securities– certificates of deposit held – 884 3,846 4,430 5,117 202 – 14,479– others – 1,005 6,088 27,278 111,417 18,254 – 164,042

Loans and receivables – 3,466 3,351 6,263 – – – 13,080Interests in associates – – – – – – 61 61Properties, plant and equipment – – – – – – 18,491 18,491Investment properties – – – – – – 7,626 7,626Other assets (including deferred

tax assets) 6,014 1,389 – 239 111 – 79 7,832

Total assets 99,495 95,042 75,749 82,083 287,075 162,884 28,674 831,002


in circulation 32,630 – – – – – – 32,630Deposits and balances of banks

and other financial institutions 21,112 15,479 1,049 3,015 – – – 40,655Trading liabilities and other

financial instruments at fairvalue through profit or loss – 641 1,411 1,750 3,560 562 – 7,924

Derivative financial instruments 2,601 427 146 239 616 164 – 4,193Deposits from customers 247,534 229,779 131,900 21,939 1,506 – – 632,658Certificates of deposit issued – – – 2,336 1,629 – – 3,965Insurance contract liabilities – – – – – 7,968 – 7,968Other accounts and provisions

(including current and deferredtax liabilities) 12,034 1,602 1,034 1,045 3,131 1 449 19,296

Total liabilities 315,911 247,928 135,540 30,324 10,442 8,695 449 749,289

Net liquidity gap (216,416) (152,886) (59,791) 51,759 276,633 154,189 28,225 81,713



2. Financial risk management (continued)(D) Liquidity risk (continued)

The above maturity classifications have been prepared in accordance with the guideline on “Financial

Disclosure by Locally Incorporated Authorized Institutions” under the Supervisory Policy Manual issued

by the HKMA. In accordance with the guideline, the Group has reported assets such as advances and

debt securities which have been overdue for not more than one month as “Repayable on demand”. In

the case of an asset that is repayable by different payments or instalments, only that portion of the

asset that is actually overdue is reported as overdue. Any part of the asset that is not due is reported

according to the residual maturity unless the repayment of the asset is in doubt in which case the

amount is reported as “Undated”. The above assets are stated after deduction of provisions, if any.

The analysis of debt securities by remaining period to maturity is disclosed in order to comply with the

guideline on “Financial Disclosure by Locally Incorporated Authorized Institutions” under the

Supervisory Policy Manual issued by the HKMA. The disclosure does not imply that the securities will be

held to maturity.

(E) Fair values of financial assets and liabilities

Fair value estimates are made at a specific point in time based on relevant market information and

information about various financial instruments. The following methods and assumptions have been

used to estimate the fair value of each class of financial instrument as far as practicable.

Balances with banks and other financial institutions and Trade bills

The maturities of these financial assets and liabilities are within one year and the carrying value

approximates fair value.

Advances to customers, banks and other financial institutions

Substantially all the advances to customers, banks and other financial institutions are on floating rate

terms, bear interest at prevailing market interest rates and their carrying value approximates fair value.

Held-to-maturity securities

Fair value for held-to-maturity securities is based on market prices or broker/dealer price quotations.

Where this information is not available, fair value has been estimated using quoted market prices for

securities with similar credit, maturity and yield characteristics. Their carrying value approximates fair

value.

Loans and receivables and Certificates of deposit issued

A discounted cash flow model is used based on a current yield curve appropriate for the remaining

term to maturity and their carrying value approximates fair value.

Deposits from customers

Substantially all the deposits from customers mature within one year from balance sheet date and their

carrying value approximates fair value.



2. Financial risk management (continued)(F) Fiduciary activities

The Group provides custody, trustee and investment management services to third parties which

involve the Group providing both settlement functions and book keeping services to the beneficiaries.

Those assets that are held in a fiduciary capacity are not included in these financial statements. As at

31 December 2006, the Group had a balance of securities custody accounts amounting to

approximately HK$224,000 million (2005: HK$175,412 million).

3. Earnings per share for profit attributable to the equity holders of the CompanyThe calculation of basic earnings per share is based on the consolidated profit attributable to the equity

holders of the Company for the year ended 31 December 2006 of approximately HK$14,007 million (2005:

HK$13,596 million) and on the ordinary shares in issue of 10,572,780,266 shares (2005: 10,572,780,266

ordinary shares).

There was no dilution of earnings per share as no potential ordinary shares were in issue for the year ended

31 December 2006 (2005: Nil).

4. Directors’ and senior management’s emoluments(a) Directors’ emoluments

Details of the emoluments paid to or receivable by the directors of the Company in respect of their

services rendered for managing the subsidiaries within the Group during the year are as follows:

Basic salaries,

allowances

Directors’ and benefits

fees in kind Bonus Total

For the year 2006 HK$’000 HK$’000 HK$’000 HK$’000

Executive Director

He Guangbei 300 4,658 1,818 6,776

Non-executive Directors

Xiao Gang 222 – – 222

Sun Changji 300 – – 300

Hua Qingshan 300 – – 300

Li Zaohang 250 – – 250

Zhou Zaiqun 300 – – 300

Zhang Yanling 250 – – 250

Fung Victor Kwok King* 300 – – 300

Koh Beng Seng* 272 – – 272

Shan Weijian* 350 – – 350

Tung Chee Chen* 300 – – 300

Tung Savio Wai-Hok* 350 – – 350

Yang Linda Tsao* 400 – – 400

3,894 4,658 1,818 10,370



4. Directors’ and senior management’s emoluments (continued)(a) Directors’ emoluments (continued)

Basic salaries,

allowances

Directors’ and benefits

fees in kind Bonus Total

For the year 2005 HK$’000 HK$’000 HK$’000 HK$’000

Executive Director

He Guangbei 331 4,728 1,969 7,028

Non-executive Directors

Xiao Gang 300 – – 300

Sun Changji 300 – – 300

Hua Qingshan 254 – – 254

Li Zaohang 250 – – 250

Zhou Zaiqun 254 – – 254

Zhang Yanling 250 – – 250

Fung Victor Kwok King* 300 – – 300

Shan Weijian* 350 – – 350

Tung Chee Chen* 300 – – 300

Tung Savio Wai-Hok* 29 – – 29

Yang Linda Tsao* 263 – – 263

3,181 4,728 1,969 9,878

Note:

* Independent Non-executive Directors

In July 2002, options were granted to several directors of the Company by the immediate holding

company, BOC (BVI), under the Pre-Listing Share Option Scheme. During the year, no options were

exercised and no benefits arising from the granting of these share options were included in the

directors’ emoluments disclosed above or recognised in the income statement.

For details of policies on directors’ emoluments please refer to the Corporate Governance Report.



4. Directors’ and senior management’s emoluments (continued)(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include 1 (2005: 1)

director whose emoluments are reflected in the analysis presented above. The emoluments payable to

the remaining 4 (2005: 4) individuals during the year are as follows:

2006 2005

HK$’m HK$’m

Basic salaries and allowances 13 12

Discretionary bonuses 6 5

Others (including pension contributions) 1 1

20 18

Emoluments of individuals were within the following bands:

Number of individuals

2006 2005

HK$3,000,001 – HK$3,500,000 – 1

HK$3,500,001 – HK$4,000,000 1 –

HK$4,000,001 – HK$4,500,000 1 –

HK$4,500,001 – HK$5,000,000 – 2

HK$5,000,001 – HK$5,500,000 – 1

HK$5,500,001 – HK$6,000,000 1 –

HK$6,000,001 – HK$6,500,000 1 –

During the year, no director waived any emoluments and the Group has not paid any emoluments to

the directors or any of the five highest paid individuals as an inducement to join or upon joining the

Group or as compensation for loss of office.



5. Properties, plant and equipment

Property Equipment,

under fixtures and

Premises development fittings Total

HK$’m HK$’m HK$’m HK$’m

Net book value at 1 January 2006

As previously reported 16,820 11 1,485 18,316

Effect of merger of a commonly

controlled entity 169 – 6 175

Net book value at 1 January 2006, restated 16,989 11 1,491 18,491

Additions – – 736 736

Disposals (186) (7) (25) (218)

Revaluation 1,208 – – 1,208

Depreciation for the year (303) – (368) (671)

Reclassification from investment

properties (Note 6) 190 – – 190

Reversal of/(provision for) impairment

losses 8 (4) – 4

Net book value at 31 December 2006 17,906 – 1,834 19,740

At 31 December 2006

Cost or valuation 17,906 – 4,658 22,564

Accumulated depreciation and impairment – – (2,824) (2,824)

Net book value at 31 December 2006 17,906 – 1,834 19,740

Net book value at 1 January 2005

As previously reported 15,184 32 1,280 16,496


controlled entity 161 – 8 169

Net book value at 1 January 2005, restated 15,345 32 1,288 16,665

Additions 19 1 549 569

Disposals (502) – (20) (522)

Revaluation 3,421 – – 3,421

Depreciation for the year (242) – (326) (568)

Reclassification to investment properties

(Note 6) (1,057) – – (1,057)

Disposal of subsidiaries – (21) – (21)

Reversal of/(provision for) impairment

losses 5 (1) – 4

Net book value at 31 December 2005 16,989 11 1,491 18,491

At 31 December 2005

Cost or valuation 16,997 19 4,166 21,182

Accumulated depreciation and impairment (8) (8) (2,675) (2,691)

Net book value at 31 December 2005 16,989 11 1,491 18,491



5. Properties, plant and equipment (continued)

Property Equipment,

under fixtures and

Premises development fittings Total


The analysis of cost or valuation of

the above assets is as follows:

At 31 December 2006

At cost – – 4,658 4,658

At valuation 17,906 – – 17,906

17,906 – 4,658 22,564

At 31 December 2005

At cost – 19 4,166 4,185

At valuation 16,997 – – 16,997

16,997 19 4,166 21,182

The carrying value of premises is analysed based on the remaining terms of the leases as follows:

2006 2005

HK$’m HK$’m

Held in Hong Kong

On long-term lease (over 50 years) 11,224 10,785

On medium-term lease (10 – 50 years) 6,452 5,960

On short-term lease (less than 10 years) – 3

Held outside Hong Kong

On long-term lease (over 50 years) 54 55

On medium-term lease (10 – 50 years) 160 180

On short-term lease (less than 10 years) 16 6

17,906 16,989

As at 31 December 2006, premises are included in the consolidated balance sheet at valuation carried out at

31 October 2006 on the basis of their open market value by an independent firm of chartered surveyors,

Knight Frank Petty Limited (formerly known as Chesterton Petty Limited). Knight Frank Petty Limited also

confirmed that there has been no material change in valuations at 31 December 2006.



5. Properties, plant and equipment (continued)As a result of the above-mentioned revaluations, changes in value of the Group’s premises were recognised in

the Group’s premises revaluation reserves, the income statement and minority interests respectively as follows:

2006 2005

HK$’m HK$’m

Increase in valuation credited to premises revaluation reserve 1,209 3,325

(Decrease)/increase in valuation credited to income statement (1) 63

Increase in valuation credited to minority interests – 33

1,208 3,421

As at 31 December 2006, the net book value of premises that would have been included in the Group’s

consolidated balance sheet had the assets been carried at cost less accumulated depreciation and impairment

losses were HK$5,750 million (2005: HK$5,780 million).

6. Investment properties

2006 2005

HK$’m HK$’m

At 1 January

As previously reported 7,539 5,381

Effect of merger of a commonly controlled entity 87 83

At 1 January, restated 7,626 5,464

Disposals (529) (256)

Fair value gains 574 1,386

Reclassification (to)/from properties, plant and equipment (Note 5) (190) 1,057

Disposal of subsidiaries – (25)

At 31 December 7,481 7,626

As at 31 December 2006, investment properties are included in the consolidated balance sheet at valuation

carried out at 31 October 2006 on the basis of their open market value by an independent firm of chartered

surveyors, Knight Frank Petty Limited. Knight Frank Petty Limited also confirmed that there has been no

material change in valuations at 31 December 2006.



6. Investment properties (continued)The carrying value of investment properties is analysed based on the remaining terms of the leases as follows:

2006 2005

HK$’m HK$’m

Held in Hong Kong

On long-term lease (over 50 years) 6,687 6,856


On short-term lease (less than 10 years) 40 39

Held outside Hong Kong

On long-term lease (over 50 years) 4 14


On short-term lease (less than 10 years) 4 –

7,481 7,626

7. Deferred taxationDeferred tax is recognised in respect of the temporary differences arising between the tax bases of assets and

liabilities and their carrying amounts in the financial statements in accordance with HKAS 12 “Income taxes”.

The major components of deferred tax assets and liabilities recorded in the consolidated balance sheet, and

the movements during the year are as follows:

2006

Accelerated Other

tax Asset temporary

depreciation revaluation Losses Provisions differences Total

HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m

At 1 January 2006 357 2,941 (72) (127) (112) 2,987

Charged to income statement 44 49 1 38 20 152

Charged to equity – 165 – – 18 183

At 31 December 2006 401 3,155 (71) (89) (74) 3,322

2005

Accelerated Other

tax Asset temporary

depreciation revaluation Losses Provisions differences Total

HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m

At 1 January 2005 315 2,215 (16) (348) (7) 2,159

Charged/(credited) to income statement 42 214 (56) 221 (62) 359

Charged/(credited) to equity – 512 – – (43) 469

At 31 December 2005 357 2,941 (72) (127) (112) 2,987



7. Deferred taxation (continued)Deferred tax assets and liabilities are offset on an individual entity basis when there is a legal right to set off

current tax assets against current tax liabilities and when the deferred taxation relates to the same authority.

The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet:

2006 2005

HK$’m HK$’m

Deferred tax assets (69) (68)

Deferred tax liabilities 3,391 3,055

3,322 2,987

2006 2005

HK$’m HK$’m

Deferred tax assets to be recovered after more than twelve months (69) (67)

Deferred tax liabilities to be settled after more than twelve months 3,434 3,128

3,365 3,061

The deferred tax charged to equity during the year is as follows:

2006 2005

HK$’m HK$’m

Fair value reserves in shareholders’ equity:

– premises 165 512

– available-for-sale securities 18 (43)

183 469

8. Share capital

2006 2005

HK$’m HK$’m

Authorised:

20,000,000,000 ordinary shares of HK$5.00 each 100,000 100,000

Issued and fully paid:

10,572,780,266 ordinary shares of HK$5.00 each 52,864 52,864



9. Reserves

Attributable to equity holders of the Company

Reserve for

fair value

changes of

Premises available-

Share revaluation for-sale Regulatory Merger Translation Retained Minority Total

capital reserve securities reserve* reserve** reserve earnings Total interests equity

HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m

At 1 January 2005

As previously reported 52,864 2,498 – 3,410 – (5) 12,315 71,082 1,276 72,358


controlled entity – 13 – – 443 – (62) 394 380 774

At 1 January 2005, restated 52,864 2,511 – 3,410 443 (5) 12,253 71,476 1,656 73,132

Net profit for the year – – – – – – 13,596 13,596 260 13,856

Currency translation difference – – – – – 1 – 1 – 1

2004 dividend paid – – – – – – (4,176) (4,176) (55) (4,231)

2005 interim dividend paid – – – – – – (3,468) (3,468) (111) (3,579)

Revaluation of premises – 3,325 – – – – – 3,325 33 3,358

Release upon disposal of premises – (269) – – – – 269 – – –

Change in fair value of

available-for-sale securities

taken to equity – – (293) – – – – (293) – (293)

Amortisation with respect to


transferred to held-to-maturity

securities – – 5 – – – (33) (28) – (28)

Release of reserve upon

derecognition of available-for-sale

securities – – – – – – (34) (34) – (34)

Release (to)/from deferred

tax liabilities – (507) 43 – – – – (464) (5) (469)

Transfer from retained earnings – – – 116 – – (116) – – –

At 31 December 2005 52,864 5,060 (245) 3,526 443 (4) 18,291 79,935 1,778 81,713

Company and subsidiaries 52,864 5,060 (245) 3,526 443 (4) 18,320 79,964

Associates – – – – – – (29) (29)

52,864 5,060 (245) 3,526 443 (4) 18,291 79,935



9. Reserves (continued)

Attributable to equity holders of the Company

Reserve forfair value

changes ofPremises available-

Share revaluation for-sale Regulatory Merger Translation Retained Minority Totalcapital reserve securities reserve* reserve** reserve earnings Total interests equityHK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m HK$’m

At 1 January 2006

As previously reported 52,864 5,043 (245) 3,526 – (4) 18,251 79,435 1,298 80,733Effect of merger of a commonly

controlled entity – 17 – – 443 – 40 500 480 980

At 1 January 2006, restated 52,864 5,060 (245) 3,526 443 (4) 18,291 79,935 1,778 81,713

Net profit for the year – – – – – – 14,007 14,007 277 14,284Currency translation difference – – – – – 4 – 4 – 42005 final dividend paid – – – – – – (5,075) (5,075) – (5,075)2006 interim dividend paid – – – – – – (4,240) (4,240) (70) (4,310)Revaluation of premises – 1,209 – – – – – 1,209 – 1,209Release upon disposal of premises – (64) – – – – 64 – – –Change in fair value of


taken to equity – – 99 – – – – 99 – 99Amortisation with respect to


transferred to held-to-maturity

securities – – 50 – – – (247) (197) – (197)Release of reserve upon

derecognition of available-for-sale

securities – – (1) – – – (3) (4) – (4)Distribution of cash – – – – (900) – – (900) – (900)Release to deferred tax liabilities – (165) (18) – – – – (183) – (183)Transfer from retained earnings – – – 95 457 – (552) – – –

At 31 December 2006 52,864 6,040 (115) 3,621 – – 22,245 84,655 1,985 86,640

Company and subsidiaries 52,864 6,040 (115) 3,621 – – 22,229 84,639Associates – – – – – – 16 16

52,864 6,040 (115) 3,621 – – 22,245 84,655

Representing:

2006 final dividend proposed 4,726Others 17,519

Retained earnings as at

31 December 2006 22,245

* In accordance with the requirements of the HKMA, the amounts are set aside for general banking risks, including future losses or other unforeseeable

risks, in addition to the loan impairment allowances recognised under HKAS 39.

** Merger reserve arising on the acquisition of BOC Life. On 1 June 2006, the Group acquired a 51% shareholding of BOC Life with a total

consideration of HK$900 million.



10. Segmental reportingThe Group engages in many businesses in several regions. For segmental reporting purposes, information is

solely provided in respect of business segments. Geographical segment information is not presented because

over 90% of the Group’s revenues, profits before tax and assets are derived from Hong Kong.

With the merger of BOC Life in the first half of 2006, the Group’s business became more diversified and an

additional business segment “Insurance” has been introduced in segmental reporting. The Group’s business

was segmented as Retail Banking, Corporate Banking, Treasury and Insurance.

Both Retail Banking and Corporate Banking segments provide general banking services. Retail Banking mainly

serves individual customers and small companies. Corporate Banking mainly deals with medium to large

companies. The Treasury segment is responsible for managing the capital, liquidity, and the interest rate and

foreign exchange positions of the Group in addition to proprietary trades. The Insurance segment shows

business relates to the Group’s long-term life insurance products, including traditional and linked individual

life insurance and group life insurance products. “Others” refers to those items related to the Group as a

whole but independent of the other four business segments, including the Group’s holdings of premises,

investment properties and interests in associates.

Revenues, expenses, assets and liabilities of any business segment mainly include items directly attributable to

the segment. In relation to occupation of the Group’s premises, rentals are internally charged on market rates

according to the areas occupied. For management overheads, allocations are made on reasonable bases.

During the period, the Group has revised the allocation bases and comparative amounts have been reclassified

to conform with the current year’s presentation. There is no impact on the Group’s income statement and

balance sheet. Inter-segment funding is charged according to the internal funds transfer pricing mechanism of

the Group. The charge on any such funding is mainly made by reference to the corresponding money market

rate.



10. Segmental reporting (continued)

2006

Retail Corporate Treasury Insurance Others Subtotal Eliminations Consolidated


Net interest income/(expenses) 7,851 4,281 4,286 473 (1,056) 15,835 – 15,835

Net fees and commission income/(expenses) 2,895 1,055 (5) (206) 36 3,775 (58) 3,717

Net trading income 590 118 759 420 – 1,887 1 1,888

Net (loss)/gain on investments in securities – – (11) – 6 (5) – (5)

Net insurance premium income – – – 6,198 – 6,198 (3) 6,195

Other operating income 49 36 – 9 1,416 1,510 (1,176) 334

Total operating income 11,385 5,490 5,029 6,894 402 29,200 (1,236) 27,964

Net insurance benefits and claims – – – (6,655) – (6,655) – (6,655)

Net operating income before loan impairment allowances 11,385 5,490 5,029 239 402 22,545 (1,236) 21,309

(Provision for)/Reversal of loan impairment allowances (27) 1,817 – – – 1,790 – 1,790

Net operating income 11,358 7,307 5,029 239 402 24,335 (1,236) 23,099

Operating expenses (5,033) (1,500) (458) (65) (738) (7,794) 1,236 (6,558)

Operating profit/(loss) 6,325 5,807 4,571 174 (336) 16,541 – 16,541

Net (loss)/gain from disposal/revaluation of properties,

plant and equipment (18) (3) (2) – 11 (12) – (12)

Net gain from disposal of/fair value adjustments

on investment properties – – – – 605 605 – 605

Share of profits less losses of associates – – – – 5 5 – 5

Profit before taxation 6,307 5,804 4,569 174 285 17,139 – 17,139

Assets

Segment assets 169,595 222,701 497,155 15,804 26,889 932,144 (3,472) 928,672

Interests in associates – – – – 60 60 – 60

Unallocated corporate assets – – – – 221 221 – 221

169,595 222,701 497,155 15,804 27,170 932,425 (3,472) 928,953

Liabilities

Segment liabilities 578,249 148,353 98,531 14,649 173 839,955 (3,472) 836,483

Unallocated corporate liabilities – – – – 5,830 5,830 – 5,830

578,249 148,353 98,531 14,649 6,003 845,785 (3,472) 842,313

Other information

Additions of properties, plant and equipment – – – – 736 736 – 736

Depreciation 189 63 38 1 380 671 – 671

Amortisation of securities – – 1,924 – – 1,924 – 1,924



10. Segmental reporting (continued)

2005

Retail Corporate Treasury Insurance Others Subtotal Eliminations Consolidated


Net interest income/(expenses) 7,326 3,776 2,428 318 (724) 13,124 – 13,124

Net fees and commission income/(expenses) 2,086 987 (17) (108) 21 2,969 (24) 2,945

Net trading income/(expenses) 500 121 1,134 (305) – 1,450 (4) 1,446

Net loss on investments in securities – – (96) – – (96) – (96)

Net insurance premium income – – – 3,634 – 3,634 (4) 3,630

Other operating income 46 5 – 9 1,498 1,558 (1,071) 487

Total operating income 9,958 4,889 3,449 3,548 795 22,639 (1,103) 21,536

Net insurance benefits and claims – – – (3,362) – (3,362) – (3,362)

Net operating income before loan impairment allowances 9,958 4,889 3,449 186 795 19,277 (1,103) 18,174

Reversal of loan impairment allowances 956 1,689 – – – 2,645 – 2,645

Net operating income 10,914 6,578 3,449 186 795 21,922 (1,103) 20,819

Operating expenses (4,514) (1,293) (308) (56) (703) (6,874) 1,103 (5,771)

Operating profit 6,400 5,285 3,141 130 92 15,048 – 15,048

Net (loss)/gain from disposal/revaluation of properties,

plant and equipment (12) (1) – – 63 50 – 50

Net gain from disposal of/fair value adjustments

on investment properties – – – 12 1,388 1,400 – 1,400

Share of profits less losses of associates – – – – 4 4 – 4

Profit before taxation 6,388 5,284 3,141 142 1,547 16,502 – 16,502

Assets

Segment assets 158,844 211,834 426,791 9,343 25,564 832,376 (1,609) 830,767

Interests in associates – – – – 61 61 – 61

Unallocated corporate assets – – – – 174 174 – 174

158,844 211,834 426,791 9,343 25,799 832,611 (1,609) 831,002

Liabilities

Segment liabilities 554,244 101,719 82,381 8,365 647 747,356 (1,609) 745,747

Unallocated corporate liabilities – – – – 3,542 3,542 – 3,542

554,244 101,719 82,381 8,365 4,189 750,898 (1,609) 749,289

Other information

Additions of properties, plant and equipment – – – – 569 569 – 569

Depreciation 186 64 22 2 294 568 – 568

Amortisation of securities – – 463 – – 463 – 463



11. Loans to directors and officersParticulars of advances made to directors and officers of the Company pursuant to section 161B of the Hong

Kong Companies Ordinance are as follows:

2006 2005

HK$’m HK$’m

Aggregate amount of relevant loans outstanding at year end 184 22

Maximum aggregate amount of relevant loans outstanding

during the year 347 186

12. Comparative amountsIn June 2006, the Group acquired a 51% shareholding of an entity under common control, BOC Life. The

financial statements have been prepared in accordance with the principles of merger accounting as set out in

Accounting Guideline 5 “Merger accounting for common control combinations” issued by the HKICPA. The

comparative amounts for the year ended 31 December 2005 have been restated in accordance with the

principles for merger accounting to present the result and assets of the Group as if BOC Life had been

combined with the Group during the year.

For the purpose of presentation of income statement, certain items are now reclassified and included as part

of the operating profit of the Group as management believes that this better reflects the Group’s operations.

Certain comparative amounts have been reclassified to conform with the current year’s presentation.

13. Approval of summary financial statementsThese Summary Financial Statements were approved and authorised for issue by the Board of Directors on 22

March 2007.

CONNECTED TRANSACTIONS


In 2006, BOCHK, a wholly owned subsidiary of the Company, and its subsidiaries engaged on a regular basis in the

usual course of their business in numerous transactions with BOC and its Associates. As BOC is the Company’s

controlling shareholder and therefore a connected person of the Company, all such transactions constituted

connected transactions for the purposes of the Listing Rules. As the stated purpose of Central SAFE is to exercise the

rights of an equity investor on behalf of the state and not to have any commercial operations, for purposes of this

report, therefore, Central SAFE and the companies of which it is a substantial shareholder have not been treated as

connected persons to the Company.

The transactions fell into the following three categories:

1. De minimis transactions entered into in the usual course of business and under normal commercial terms. Such

transactions were exempted from disclosure and shareholder approval by virtue of rule 14A.33 of the Listing

Rules;

2. Certain regular banking transactions entered into on a continual basis throughout the year. On 4 January 2005

the Company made an announcement (the “Announcement”) in accordance with Rule 14A.34 of the Listing

Rules. The Announcement listed those continuing connected transactions that exceeded the de minimis

threshold and set out caps in respect of such transactions for the three years 2005-2007. These transactions

were conducted in the ordinary course of its business and on normal commercial terms. On 11 April 2006 the

Company has announced its intention to revise the caps for Inter-bank Capital Markets transactions. On 26

May 2006 over 99.99% of the independent shareholders in the extraordinary general meeting voted for such

changes. Details of these continuing connected transactions are set out below and are described in the

announcements which may be viewed at the Company’s website.

2006

Actual

2006 Cap Amount

Type of Transaction HK$’m HK$’m

Securities Transactions 220 196

Fund Distribution Transactions 190 54

Credit Card Services 220 92

Information Technology Services 110 43

Property Transactions 140 97

Bank-note Delivery 100 38

Insurance Agency 410 295

Provision of Insurance Cover 110 62

Foreign Exchange Transactions 550 56

Trading of Interests in Loans 18,500 1,180

Inter-bank Capital Markets 14,000 4,539

3. On 11 April 2006 the Company and BOC Insurance entered into a Sale and Purchase Agreement whereby the

Company conditionally agreed to purchase the BOC Life Shares, representing 51% of the issued share capital

of BOC Life, for a purchase price of HK$900 million. As BOC Insurance is wholly owned by BOC, this purchase

constitute a connected transaction. On 26 May 2006 an extraordinary general meeting was held and over

99.99% of the independent shareholders vote for the resolutions.

RECONCILIATION BETWEEN HKFRSs VS IFRS/PRC GAAP


The Company understands that BOC, an intermediate holding company as well as controlling shareholder of the

Company, will prepare and disclose consolidated financial information in accordance with IFRS and PRC GAAP for

which the Company and its subsidiaries will form part of the consolidated financial statements.

The consolidated financial information of “BOC Hong Kong Group” for the periods disclosed by BOC in its consolidated

financial statements is not the same as the consolidated financial information of the Group for the periods published by

the Company pursuant to applicable laws and regulations in Hong Kong. There are two reasons for this.

First, the definitions of “BOC Hong Kong Group” (as adopted by BOC for the purpose of its own financial disclosure)

and “Group” (as adopted by the Company in preparing and presenting its consolidated financial information) are

different: “BOC Hong Kong Group” refers to BOCHKG and its subsidiaries, whereas “Group” refers to the Company

and its subsidiaries (see the below organisation chart). Though there is difference in definitions between “BOC Hong

Kong Group” and “Group”, their financial results for the periods presented are substantially the same. This is

because BOCHKG and BOC (BVI) are holding companies only and have no substantive operations of their own.

BOC

BOCHKG

BOC (BVI)

The Company

100%

100%

approximately 66%

Second, the Group has prepared its consolidated financial statements in accordance with HK GAAP prior to 1 January

2005 and as from 1 January 2005 onwards in accordance with HKFRSs; whereas the consolidated financial

information reporting to BOC is prepared in accordance with IFRS and PRC GAAP respectively. Despite the fact that

HKFRSs have converged with IFRS, there is a timing difference in the initial adoption of HKFRSs and IFRS by the Group

and by BOC respectively.

The Board considers that the best way to ensure that shareholders and the investing public understand the material

differences between the consolidated financial information of the Group published by the Company on the one hand,

and the consolidated financial information of BOC Hong Kong Group disclosed by BOC in its financial statements on

the other hand, is to present reconciliations of the profit after tax/net assets of the Group prepared under HKFRSs to

the profit after tax/net assets of the Group prepared under IFRS and PRC GAAP respectively for the periods presented.

The major differences between HKFRSs and IFRS/PRC GAAP, which arise from the difference in measurement basis in

IFRS or PRC GAAP and the timing difference in the initial adoption of HKFRSs and IFRS relate to the following:

• loan loss allowance;

• re-measurement of carrying value of treasury products;

• restatement of carrying value of bank premises and investment properties; and

• deferred taxation impact arising from the above different measurement basis.



(a) Loan loss allowanceSuch adjustments were mainly due to the different approaches used to determine loan loss allowance under

different accounting standards. Before 2005, the provisioning approach adopted by the Company mainly

followed the guidelines issued by the Hong Kong Monetary Authority. This approach was different from the

requirements of IFRS and PRC GAAP under which impairment losses assessment is based on the estimated

future cash flows of the loans or group of loans as of each balance sheet date.

Effective 1 January 2005, the provisioning approach adopted under HKFRSs and IFRS was aligned. Due to the

difference in the timing of first adoption of HKFRSs and IFRS, impairment charges to the income statement

under HKFRSs and IFRS for 2005 were different. The provisioning approach under IFRS and PRC GAAP is

basically the same.

(b) Re-measurement of carrying value of treasury products(i) Non-trading derivatives held for hedging purposes were not required to be marked to market under HK

GAAP before 2005. Since 2005, their measurement has been aligned with IFRS and PRC GAAP with

slight differences in profit and loss and net assets in 2005 mainly due to timing differences.

(ii) Due to the difference in the timing of first adoption of HKFRSs and IFRS, classification and

measurement of certain investment securities under HK GAAP/HKFRSs and IFRS were different.

Therefore, investment securities were reclassified and re-measured to align with the accounting policies

of BOC for the relevant periods. Classification and measurement under IFRS and PRC GAAP is basically

the same.

(c) Restatement of carrying value of bank premises and investment propertiesThe Company has elected for a revaluation basis rather than cost basis to account for bank premises and

investment properties under HKFRSs. On the contrary, BOC has elected for the cost convention for bank

premises and revaluation basis for investment properties under IFRS; and cost convention for both bank

premises and investment properties under PRC GAAP. Therefore, adjustments have been made to restate the

carrying value of bank premises and investment properties as well as to re-calculate the depreciation charge

and disposal gain/loss under IFRS and PRC GAAP.

(d) Deferred tax adjustmentsThese represent the deferred tax effect of the aforesaid adjustments.

(e) Merger accounting adjustmentsThe Group has applied merger accounting to account for the purchase of the 51% equity interest in BOC Life

on 1 June 2006, as if the business combination had occurred from the beginning of the relevant periods.

Comparatives under HKFRSs were restated accordingly. For the purpose of segment reporting in respect of

BOCHKG in the financial statements of BOC under IFRS and PRC GAAP, comparatives were not restated.

Going forward, the differences relating to the restatement of carrying value of bank premises as a result of the

election of the different measurement basis allowed under HKFRSs and IFRS and PRC GAAP will be recurring in the

future, while the timing difference related to the measurement of investment securities will be reversed gradually and

eliminated in the future years. The difference in the carrying value of investment properties will be eliminated next

year after the convergence of PRC GAAP with HKFRSs.



Profit after tax/Net assets reconciliation(i) HKFRSs Vs IFRS

Profit after tax Net assets

2006 2005 2006 2005


Profit after tax/net assets of

BOC Hong Kong (Holdings) Limited

prepared under HKFRSs 14,284 13,856 86,640 81,713

Add: IFRS adjustments

Loan loss allowance – (172) – –

Re-measurement of carrying value

of treasury products (226) 465 44 70

Restatement of carrying value of

bank premises 164 439 (7,295) (6,248)

Deferred tax adjustments 28 (69) 1,230 1,027

Merger accounting adjustments – (198) – (980)

Other adjustments – 68 – –



prepared under IFRS 14,250 14,389 80,619 75,582

(ii) HKFRSs Vs PRC GAAP

Profit after tax Net assets

2006 2005 2006 2005




prepared under HKFRSs 14,284 13,856 86,640 81,713

Add: PRC GAAP adjustments

Loan loss allowance – (172) – –

Re-measurement of carrying value

of treasury products (226) 465 44 65

Restatement of carrying value of

bank premises & investment

properties (336) (1,209) (10,495) (8,949)

Deferred tax adjustments 59 172 3,162 2,920

Merger accounting adjustments – (198) – (980)

Other adjustments (36) (4) (108) (72)



prepared under PRC GAAP 13,745 12,910 79,243 74,697

AUDITOR’S STATEMENT ON THE SUMMARY FINANCIAL REPORT


TO THE SHAREHOLDERS OFBOC HONG KONG (HOLDINGS) LIMITED(incorporated in Hong Kong with limited liability)

We have examined the summary financial report of BOC Hong Kong (Holdings) Limited for the year ended 31

December 2006 on pages 2 to 105.

Respective responsibilities of directors and auditorsUnder the Hong Kong Companies Ordinance, the directors of the Company are responsible for preparing the

summary financial report which complies with section 141CF(1) of the Hong Kong Companies Ordinance. In preparing

the summary financial report, section 141CF(1) of the Hong Kong Companies Ordinance requires that the summary

financial report be derived from the annual consolidated financial statements and the independent auditor’s report

thereon and the directors’ report for the year ended 31 December 2006, be in such form and contain such

information and particulars as specified in section 5 of the Hong Kong Companies (Summary Financial Reports of

Listed Companies) Regulation, and be approved by the board of directors.

It is our responsibility to form an independent opinion on the summary financial report, based on our examination,

and to report our opinion solely to you, as a body, and we are also required to state whether the independent

auditor’s report on the annual consolidated financial statements for the year ended 31 December 2006 is qualified or

otherwise modified, in accordance with section 5 of the Hong Kong Companies (Summary Financial Reports of Listed

Companies) Regulation, and for no other purpose. We do not assume responsibility towards or accept liability to any

other person for the contents of this statement.

Basis of opinionWe conducted our engagement in accordance with Hong Kong Standards on Assurance Engagements and with

reference to Practice Note 710 “The auditors’ statement on the summary financial report” issued by the Hong Kong

Institute of Certified Public Accountants. Our examination includes examining evidence supporting the consistency of

the summary financial report with the annual consolidated financial statements and the independent auditor’s report

thereon and the directors’ report for the year ended 31 December 2006 and the compliance of the summary financial

report with the requirements of section 5 of the Hong Kong Companies (Summary Financial Reports of Listed

Companies) Regulation, and performing such other procedures as we considered necessary in the circumstances. We

believe that our examination provides a reasonable basis for our opinion.

OpinionBased on the foregoing, in our opinion the summary financial report on pages 2 to 105:

(a) is consistent with the annual consolidated financial statements and the independent auditor’s report thereon

and the directors’ report of BOC Hong Kong (Holdings) Limited for the year ended 31 December 2006 from

which it is derived; and

(b) complies with the requirements of section 5 of the Hong Kong Companies (Summary Financial Reports of

Listed Companies) Regulation.

We have audited the annual consolidated financial statements of BOC Hong Kong (Holdings) Limited for the year

ended 31 December 2006 and have issued an independent auditor’s report thereon dated 22 March 2007 which is

unqualified or otherwise unmodified.

PricewaterhouseCoopersCertified Public AccountantsHong Kong, 22 March 2007

SHAREHOLDER INFORMATION


Financial Calendar 2007

Announcement of 2006 annual results 22 March (Thursday)

Last day in Hong Kong of dealings in the Company’s shares 14 May (Monday)

with entitlement to final dividend

Ex-dividend date 15 May (Tuesday)

ADS record date for final dividend 16 May (Wednesday)

Latest time in Hong Kong for lodging transfers for entitlement to 16 May (Wednesday) 4:30 p.m.

final dividend

Book closure period (both days inclusive) 17 May (Thursday) to 22 May (Tuesday)

Record date for final dividend 22 May (Tuesday)

Latest time for lodging proxy forms for 2007 Annual General Meeting 21 May (Monday) 3:00 p.m.

2007 Annual General Meeting 23 May (Wednesday) 3:00 p.m.

Final dividend payment date 30 May (Wednesday)

Announcement of 2007 interim results Mid to late August

Annual General MeetingThe 2007 Annual General Meeting will be held at 3:00 p.m. on Wednesday, 23 May 2007 at Meeting Room 201,

Hong Kong Convention and Exhibition Centre, 1 Expo Drive, Wanchai, Hong Kong (please use Expo Drive Entrance).

DividendsThe Directors have recommended a final dividend of HK$0.447 per share subject to the approval of shareholders at

the 2007 Annual General Meeting.

Share InformationListing

The Company’s ordinary shares are listed and traded on the Stock Exchange. In addition, the Company maintains a

Level 1 ADR facility for its ADSs. Each ADS represents 20 ordinary shares of the Company.

Ordinary shares (as at 31 December 2006)

Issued shares: 10,572,780,266

Public float: Approximately 34%

Nominal value

HK$5.00 per share

Market capitalisation (as at 31 December 2006)

HK$223.09 billion

Share Price

Closing price on 31 December 2004: HK$14.85



Highest trading price during the year: HK$22.10

Lowest trading price during the year: HK$14.45



Credit ratings (long term)

Standard & Poor’s: A–

Moody’s Investors Service: A2

Fitch Ratings: A

Index constituent

The Company is a constituent of the following indices:

Hang Seng Index

Hang Seng London Reference Index

MSCI Index

FTSE All-World Hong Kong Index

FTSE/Xinhua China 25 Index

Stock codes

Ordinary shares:

The Stock Exchange of Hong Kong Limited: 2388

Reuters: 2388.HK

Bloomberg: 2388 HK

Level 1 ADR Programme:

CUSIP No.: 096813209

OTC Symbol: BHKLY

Shareholder EnquiriesAny matters relating to your shareholding, e.g. transfer of shares, change of name or address, lost share certificates

and dividend warrants, should be sent in writing to:

Hong Kong Computershare Hong Kong Investor Services Limited

Rooms 1806-1807

18th Floor, Hopewell Centre

183 Queen’s Road East

Telephone: (852) 2862 8555

Facsimile: (852) 2865 0990 / (852) 2529 6087

E-mail: [email protected]

USA Citibank Shareholder Services

250 Royall Street

Canton, MA 02021, USA

Telephone: 1-877-248-4237 (toll free)

1-781-575-4555 (outside USA)




Investor RelationsEnquiries may be directed to:

Investor Relations Division


52nd Floor

Bank of China Tower

1 Garden Road

Hong Kong

Telephone: (852) 2826 6314 / (852) 2846 2749

Facsimile: (852) 2810 5830


DEFINITIONS


In this Summary Financial Report, unless the context otherwise requires, the following terms shall have the meanings

set out below:

Terms Meanings

“AC” the Audit Committee

“ADR” American Depositary Receipt

“ADS” American Depositary Share

“ALCO” the Asset and Liability Management Committee

“Annual Financial Statements” the annual financial statements of BOC Hong Kong (Holdings) Limited

“Associate(s)” has the meaning ascribed to “associate(s)” in the Listing Rules

“ATM” Automated Teller Machine

“Board” or “Board of Directors” the Board of Directors of the Company

“BOC” Bank of China Limited, a joint stock commercial bank with limited liability

established under the laws of the PRC, the H shares and A shares of

which are listed on the Hong Kong Stock Exchange and the Shanghai

Stock Exchange, respectively

“BOC (BVI)” BOC Hong Kong (BVI) Limited, a company incorporated under the laws of

the British Virgin Islands and a wholly owned subsidiary of BOCHKG

“BOC Insurance” Bank of China Group Insurance Company Limited, a company

incorporated under the laws of Hong Kong and a wholly owned

subsidiary of BOC

“BOC Life” BOC Group Life Assurance Company Limited, a company incorporated

under the laws of Hong Kong, in which the Group and BOC Insurance

hold equity interests of 51% and 49% respectively

“BOC-CC” BOC Credit Card (International) Limited, a company incorporated under

the laws of Hong Kong and a wholly subsidiary of BOCHK

“BOCHK” Bank of China (Hong Kong) Limited, a company incorporated under the

laws of Hong Kong and a wholly owned subsidiary of the Company

“BOCHKG” BOC Hong Kong (Group) Limited, a company incorporated under the

laws of Hong Kong and a wholly owned subsidiary of BOC

“BOCHK Charitable Foundation” Bank of China (Hong Kong) Limited Charitable Foundation (formerly

known as the “Bank of China Group Charitable Foundation”), a

charitable foundation being established in July 1994

DEFINITIONS


Terms Meanings

“BOCI” BOC International Holdings Limited, a company incorporated under the

laws of Hong Kong and a wholly owned subsidiary of BOC

“CBS” Corporate Banking Services

“CE” Chief Executive

“Central SAFE” Central SAFE Investments Limited

“Chiyu” Chiyu Banking Corporation Limited, a company incorporated under the

laws of Hong Kong, in which BOCHK holds an equity interest of 70.49%

“Company” BOC Hong Kong (Holdings) Limited, a company incorporated under the

laws of Hong Kong

“CRO” Chief Risk Officer

“GDP” Gross Domestic Product

“Group” the Company and its subsidiaries collectively referred as the Group

“HIBOR” Hong Kong Interbank Offered Rate

“HKAS(s)” Hong Kong Accounting Standard(s)

“HKFRS(s)” Hong Kong Financial Reporting Standard(s)

“HK GAAP” Generally Accepted Accounting Principles in Hong Kong

“HKICPA” Hong Kong Institute of Certified Public Accountants

“HKMA” Hong Kong Monetary Authority

“Hong Kong” or “Hong Kong SAR” Hong Kong Special Administrative Region

“Hong Kong SAR Government” Hong Kong Special Administrative Region Government

“Hua Chiao” Hua Chiao Commercial Limited (in members’ voluntary liquidation), a

company incorporated under the laws of Hong Kong, in which BOC holds

an equity interest of 93.64%

“IFRS” International Financial Reporting Standards

“IPO” Initial Public Offering

“IT” Information Technology

DEFINITIONS


Terms Meanings

“LIBOR” London Interbank Offered Rate

“Listing Rules” The Rules Governing the Listing of Securities on The Stock Exchange of

Hong Kong Limited

“The Mainland” or “Mainland China” The mainland of the PRC

or “The Mainland of China”

“MSCI Index” Morgan Stanley Capital International Index

“Nanyang” Nanyang Commercial Bank, Limited, a company incorporated under the

laws of Hong Kong and a wholly owned subsidiary of BOCHK

“PRC” The People’s Republic of China

“PRC GAAP” Accounting Standards for Business Enterprises and the Accounting

System for Financial Institutions of the PRC

“RC” The Risk Committee

“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC

“RMD” The Risk Management Department

“SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong

Kong

“Share Option Scheme” the Share Option Scheme conditionally approved and adopted by the

shareholders of the Company on 10 July 2002

“Sharesave Plan” the Sharesave Plan conditionally approved and adopted by the

shareholders of the Company on 10 July 2002

“SME(s)” Small and medium-sized enterprise(s)

“Stock Exchange” or The Stock Exchange of Hong Kong Limited

“Stock Exchange of Hong Kong”

“Summary Financial Report” Summary Financial Report of the Group for the year ended 31 December

2006

“Summary Financial Statements” comprise consolidated income statement and consolidated balance sheet

of the Group extracted from the Annual Financial Statements

“US” or “USA” the United States of America

“VAR” Value at Risk

BRANCH NETWORK & CORPORATE BANKING CENTRES


Bank of China (Hong Kong) – Branch NetworkHong Kong Island

Branch Address Telephone

Central & Western District

Bank of China Tower Branch 1 Garden Road, Hong Kong 2826 6888

Sheung Wan Branch 252 Des Voeux Road Central, Hong Kong 2541 1601

Queen’s Road West 2-12 Queen’s Road West, Sheung Wan, 2815 6888

(Sheung Wan) Branch Hong Kong

Connaught Road Central Branch 13-14 Connaught Road Central, Hong Kong 2841 0410

Central District Branch 2A Des Voeux Road Central, Hong Kong 2160 8888

Central District 71 Des Voeux Road Central, Hong Kong 2843 6111

(Wing On House) Branch

Shek Tong Tsui Branch 534 Queen’s Road West, Shek Tong Tsui, 2819 7277

Hong Kong

Western District Branch 386-388 Des Voeux Road West, Hong Kong 2549 9828

Queen’s Road Central Branch 81-83 Queen’s Road Central, Hong Kong 2588 1288

Bonham Road Branch 63 Bonham Road, Hong Kong 2517 7066

IFC Wealth Management Centre Shop 3001, Level 3, IFC Mall, 2523 8180

1 Harbour View Street, Central, Hong Kong

Kennedy Town Branch Harbour View Garden, 2-2F Catchick Street, 2818 6162

Kennedy Town, Hong Kong

Caine Road Branch 57 Caine Road, Hong Kong 2521 3318

First Street Branch 55A First Street, Sai Ying Pun, Hong Kong 2517 3399

United Centre Branch Shop 1021, United Centre, 95 Queensway, 2861 1889

Hong Kong

Wyndham Street Branch 1-3 Wyndham Street, Central, Hong Kong 2843 2888

Des Voeux Road West Branch 111-119 Des Voeux Road West, Hong Kong 2546 1134

Gilman Street Branch 136 Des Voeux Road Central, Hong Kong 2135 1123

Wan Chai District

Jardine’s Bazaar Branch G/F, Siki Centre, No. 23 Jardine’s Bazaar, 2882 1383

Causeway Bay, Hong Kong

Gloucester Road Wealth Unit 3, G/F, Immigration Tower, 2511 8933

Management Centre 7 Gloucester Road, Wan Chai, Hong Kong

409 Hennessy Road Branch 409-415 Hennessy Road, Wan Chai, 2835 6118

Hong Kong

Johnston Road Branch 152-158 Johnston Road, Wan Chai, 2574 8257

Hong Kong

Harbour Road Branch 26 Harbour Road, Wan Chai, Hong Kong 2827 8407

Happy Valley Branch 11 King Kwong Street, Happy Valley, 2838 6668

Hong Kong

Causeway Bay Branch 18 Percival Street, Causeway Bay, Hong Kong 2572 4273

Wan Chai (China Overseas 139 Hennessy Road, Wan Chai, Hong Kong 2529 0866

Building) Branch

Wan Chai (Wu Chung House) 213 Queen’s Road East, Wan Chai, Hong Kong 2892 0909

Branch

Hennessy Road (Wan Chai) Branch 310-312 Hennessy Road, Wan Chai, 2923 5628

Hong Kong

Wan Chai Road Branch 127-135 Wan Chai Road, Wan Chai, 2577 4862

Hong Kong

Eastern District

Siu Sai Wan Branch Shop 19, Cheerful Garden, Siu Sai Wan, 2505 2399

Hong Kong

Taikoo Shing Branch Shop G1012, Yiu Sing Mansion, Taikoo Shing, 2886 0612

Hong Kong

Taikoo Shing Branch Safe Box Shop G1006, Hoi Shing Mansion, Taikoo Shing, 2885 4582

Service Centre Hong Kong

North Point Branch Roca Centre, 464 King’s Road, North Point, 2811 8880

Hong Kong

North Point (King’s Centre) Branch 193-209 King’s Road, North Point, Hong Kong 2286 2000

North Point (Hang Ying Building) Shop B1, 318-328 King’s Road, North Point, 2887 1199

Branch Hong Kong

North Point (Kiu Fai Mansion) 413-415 King’s Road, North Point, Hong Kong 2562 6108

Branch

Sai Wan Ho Branch 142-146 Shau Kei Wan Road, Sai Wan Ho, 2886 3344

Hong Kong

Heng Fa Chuen Branch Shop 205-208, East Wing Shopping Centre, 2897 1131

Heng Fa Chuen, Chai Wan, Hong Kong

Kam Wa Street Branch 3 Kam Wa Street, Shau Kei Wan, Hong Kong 2885 9311

City Garden Branch 233 Electric Road, North Point, Hong Kong 2571 2878

King’s Road Branch 131-133 King’s Road, North Point, Hong Kong 2887 0282

Chai Wan Branch Block B, Walton Estate, 341-343 2558 6433

Chai Wan Road, Chai Wan, Hong Kong

Chai Wan Branch Safe Box 27 Gold Mine Building, 345 Chai Wan Road, 2557 0248

Service Centre Chai Wan, Hong Kong

Healthy Village Branch Shop 1 & 2, Healthy Village Phase II, 2563 2278

668 King’s Road, North Point, Hong Kong

Sheung On Street Branch 77 Sheung On Street, Chai Wan, Hong Kong 2897 0923


Aldrich Garden Branch Shop 58, Aldrich Garden, Shau Kei Wan, 3196 4956

Hong Kong

Shau Kei Wan (Po Man Building) 260-262 Shau Kei Wan Road, Shau Kei Wan, 2568 5211

Branch Hong Kong

Wan Tsui Road Branch 4 Lin Shing Road, Chai Wan, Hong Kong 2557 3283

Quarry Bay Branch Parkvale, 1060 King’s Road, Quarry Bay, 2564 0333

Hong Kong

Southern District

Tin Wan Branch 2-12 Ka Wo Street, Tin Wan, Hong Kong 2553 0135

Stanley Branch Shop 401, Shopping Centre, Stanley Plaza, 2813 2290

Hong Kong

Aberdeen Branch 25 Wu Pak Street, Aberdeen, Hong Kong 2553 4165

South Horizons Branch G38, West Centre Marina Square, 2580 0345

South Horizons, Ap Lei Chau, Hong Kong

South Horizons Branch Safe Box Shop 118, Marina Square East Centre, 2555 7477

Service Centre Ap Lei Chau, Hong Kong

Wah Kwai Estate Branch Shop 17, Shopping Centre, Wah Kwai Estate, 2550 2298

Hong Kong

Wong Chuk Hang Road Branch 40 Wong Chuk Hang Road, Hong Kong 2814 8272

Chi Fu Landmark Branch Shop 510, Chi Fu Landmark, Pok Fu Lam, 2551 2282

Hong Kong

Ap Lei Chau Branch 13-15 Wai Fung Street, Ap Lei Chau, 2554 6487

Hong Kong

KowloonBranch Address Telephone

Kowloon City District

Prince Edward Road 382-384 Prince Edward Road, 2926 6038

(Kowloon City) Branch Kowloon City, Kowloon

To Kwa Wan Branch 80N To Kwa Wan Road, To Kwa Wan, 2364 4344

Kowloon

Pak Tai Street Branch 4-6 Pak Tai Street, To Kwa Wan, Kowloon 2760 7773

Hung Hom (Eldex Industrial 21 Ma Tau Wai Road, Hung Hom, Kowloon 2764 8363

Building) Branch

Hung Hom Wealth Management 37-39 Ma Tau Wai Road, Hung Hom, 2170 0888

Centre Kowloon

OUHK Branch The Open University of Hong Kong, 2760 9099

30 Good Shepherd Street, Ho Man Tin,

Kowloon

Ma Tau Kok Road Branch 39-45 Ma Tau Kok Road, To Kwa Wan, 2714 9118

Kowloon

Ma Tau Wai Road Branch 47-49 Ma Tau Wai Road, Hung Hom, Kowloon 2926 5123

Site 11 Whampoa Garden Branch Shop G6, Site 11, Whampoa Garden, 2363 3982

Hung Hom, Kowloon

Whampoa Garden Branch Shop G8B, Site 1, Whampoa Garden, 2764 7233

Hung Hom, Kowloon

Nga Tsin Wai Road Branch 25 Nga Tsin Wai Road, Kowloon City, 2383 2316

Kowloon

Waterloo Road Branch Shop A2, Man Kee Mansion, 2363 9231

86 Waterloo Road, Kowloon

Wong Tai Sin District

Tai Yau Street Branch 35 Tai Yau Street, San Po Kong, Kowloon 2328 0087

Chuk Yuen Estate Branch Shop S1, Chuk Yuen Shopping Centre, 2325 5261

Chuk Yuen South Estate, Kowloon

Choi Hung Branch 19 Clear Water Bay Road, Ngau Chi Wan, 2327 0271

Kowloon

Choi Hung Road Branch 58-68 Choi Hung Road, San Po Kong, 2927 6111

Kowloon

Choi Wan Estate Branch A3-18 Commercial Complex, Choi Wan Estate, 2754 5911

Kowloon

Wong Tai Sin Branch Shop G1, Wong Tai Sin Shopping Centre, 2327 8147

Wong Tai Sin, Kowloon

San Po Kong (Wing Lok 28-34 Tseuk Luk Street, San Po Kong, 2328 7915

Building) Branch Kowloon

Yuk Wah Street Branch 46-48 Yuk Wah Street, Tsz Wan Shan, 2927 6655

Kowloon

Lok Fu Branch Shop 2, Lok Fu Shopping Centre II, Lok Fu, 2337 0271

Kowloon

Tseuk Luk Street Wealth 86 Tseuk Luk Street, San Po Kong, Kowloon 2326 2883

Management Centre

Sheung Fung Street Branch 66-68 Sheung Fung Street, Tsz Wan Shan, 2327 8118

Kowloon

Diamond Hill Branch G107 Plaza Hollywood, Diamond Hill, Kowloon 2955 5088



Bank of China (Hong Kong) – Branch Network(continued)


Kwun Tong District

Kowloon Bay Wealth Shop 2, Telford House, 16 Wang Hoi Road, 2759 9339

Management Centre Kowloon Bay, Kowloon

Kowloon Bay Branch 17 Wang Hoi Road, Kowloon Bay, Kowloon 2331 3783

Ngau Tau Kok (Garden Estate) Shop 6, Lotus Tower 2, 2763 5456

Branch Kwun Tong Garden Estate,

297 Ngau Tau Kok Road,

Ngau Tau Kok, Kowloon

169 Ngau Tau Kok Road Branch 169 Ngau Tau Kok Road, Ngau Tau Kok, 2750 7311

Kowloon

177 Ngau Tau Kok Road Branch 177 Ngau Tau Kok Road, Ngau Tau Kok, 2927 4321

Kowloon

Ping Tin Estate Branch Shop 225, 2/F, Ping Tin Shopping Centre, 2927 7828

Lam Tin, Kowloon

Wang Kwun Road Branch Unit G1, Nan Fung Commercial Centre, 2755 0268

Wang Kwun Road, Kowloon Bay, Kowloon

Sau Mau Ping Branch Shop 214, Sau Mau Ping Shopping Centre, 2772 0028

Sau Mau Ping, Kowloon

Hip Wo Street Branch 195-197 Hip Wo Street, Kwun Tong, Kowloon 2345 0102

Ting Fu Street Branch 11-13 Ting Fu Street, Ngau Tau Kok, Kowloon 2756 4621

Yau Tong Branch Shop G1-G27, Ka Fu Arcade, Yau Tong Centre, 2349 9191

Kowloon

Hoi Yuen Road Branch 55 Hoi Yuen Road, Kwun Tong, Kowloon 2763 2127

Tsui Ping Estate Branch Shop 116, 1/F, Shopping Circuit, 2345 3238

Tsui Ping Estate, Kwun Tong, Kowloon

26 Fu Yan Street Branch 26-32 Fu Yan Street, Kwun Tong, Kowloon 2342 5262

95 Fu Yan Street Branch 95 Fu Yan Street, Kwun Tong, Kowloon 2343 4141

Telford Gardens Wealth Shop P20, Telford Gardens, Kowloon Bay, 2758 3987

Management Centre Kowloon

Telford Gardens Branch Shop P2, Telford Gardens, Kowloon Bay, 2796 1551

Kowloon

Lam Tin Branch Shop 12, 49 Kai Tin Road, Lam Tin, Kowloon 2347 1456

Kwun Tong Branch 20-24 Yue Man Square, Kwun Tong, Kowloon 2344 4116

Ngau Tau Kok Road 327 Ngau Tau Kok Road, Kwun Tong, 2389 3301

(Kwun Tong) Branch Kowloon

Kwun Tong Plaza Branch G1 Kwun Tong Plaza, 68 Hoi Yuen Road, 2342 4295

Kwun Tong, Kowloon

Yau Tsim Mong District

Tai Kok Tsui Branch 73-77 Tai Kok Tsui Road, Tai Kok Tsui, 2395 3269

Kowloon

Shan Tung Street Branch 42-48 Shan Tung Street, Mong Kok, 2332 5461

Kowloon

Shanghai Street (Prince Edward) 689-693 Shanghai Street, Mong Kok, 2391 0502

Branch Kowloon

Prince Edward Branch 774 Nathan Road, Kowloon 2399 3000

Tsim Sha Tsui Branch 24-28 Carnarvon Road, Tsim Sha Tsui, 2721 6242

Kowloon

Tsim Sha Tsui East Branch Shop G02-03, Inter-Continental Plaza, 2739 0308

94 Granville Road, Tsim Sha Tsui, Kowloon

Jordan Branch 328-330 Nathan Road, Kowloon 2928 6111

Jordan Road Branch 1/F, Sino Cheer Plaza, 23-29 Jordan Road, 2730 0883

Kowloon

Shanghai Street (Mong Kok) 611-617 Shanghai Street, Mong Kok, 2394 4181

Branch Kowloon

Mong Kok Branch 589 Nathan Road, Mong Kok, Kowloon 2332 0111

Prince Edward Road West 116-118 Prince Edward Road West, 2928 4138

(Mong Kok) Branch Mong Kok, Kowloon

Mong Kok Road Branch 50-52 Mong Kok Road, Mong Kok, Kowloon 2395 3263

Mong Kok (Silvercorp Int’l Tower) Shop B, 707-713 Nathan Road, Mong Kok, 2391 6677

Branch Kowloon

Mong Kok (President Commercial 608 Nathan Road, Mong Kok, Kowloon 2384 7191

Centre) Branch

Shanghai Street (Yau Ma Tei) 364-366 Shanghai Street, Yau Ma Tei, 2782 2071

Branch Kowloon

Yau Ma Tei Branch 471 Nathan Road, Yau Ma Tei, Kowloon 2780 2307

Kimberley Road Branch 37 Kimberley Road, Tsim Sha Tsui, Kowloon 2739 1886

Cameron Road Wealth 30 Cameron Road, Tsim Sha Tsui, Kowloon 2312 0010

Management Centre

Humphrey’s Avenue Branch 4-4A Humphrey’s Avenue, Tsim Sha Tsui, 2311 3822

Kowloon

Olympian City Branch Shop 133, 1/F, Olympian City 2, 2749 2110

18 Hoi Ting Road, Kowloon

Fuk Tsun Street Branch 32-40 Fuk Tsun Street, Tai Kok Tsui, Kowloon 2391 8468

Canton Road Branch 60 Canton Road, Tsim Sha Tsui, Kowloon 2730 0688

Lock Road Branch 19 Lock Road, Tsim Sha Tsui, Kowloon 2367 6164


Sham Shui Po DistrictKowloon Plaza Branch Unit 1, Kowloon Plaza, 485 Castle Peak Road, 2370 8928

KowloonFestival Walk Branch Unit LG256, Festival Walk, Kowloon Tong, 2265 7288

KowloonYu Chau Street Branch 42-46 Yu Chau Street, Sham Shui Po, Kowloon 2397 1123Dragon Centre Branch Shop 206A, Dragon Centre, 2788 3238

37K Yen Chow Street, Sham Shui Po,Kowloon

Lei Cheng Uk Estate Branch Shop 108, Lei Cheng Uk Commercial Centre, 2729 8251Lei Cheng Uk Estate, Kowloon

Castle Peak Road 365-371 Castle Peak Road, Cheung Sha Wan, 2728 3311(Cheung Sha Wan) Branch Kowloon

108 Cheung Sha Wan Road 108 Cheung Sha Wan Road, Sham Shui Po, 2779 0157Branch Kowloon

194 Cheung Sha Wan Road 194-196 Cheung Sha Wan Road, 2728 9389Branch Sham Shui Po, Kowloon

Cheung Sha Wan Plaza Branch Shop G08, Cheung Sha Wan Plaza, 2745 7088833 Cheung Sha Wan Road, Kowloon

248 Castle Peak Road Branch 244-248 Castle Peak Road, Cheung Sha Wan, 2386 1233Kowloon

412 Castle Peak Road Branch 412-420 Castle Peak Road, Cheung Sha Wan, 2743 8010Kowloon

223 Nam Cheong Street Branch 223 Nam Cheong Street, Sham Shui Po, 2928 2088Kowloon

Stage 2 Mei Foo Sun Chuen 19 Glee Path, Mei Foo Sun Chuen, Kowloon 2370 8382Branch

Mei Foo VIP Centre Shop N47-49, Mount Sterling Mall, 2742 8003Mei Foo Sun Chuen, Kowloon

Mei Foo Mount Sterling Mall 17-B Mount Sterling Mall, 2742 6611Branch Mei Foo Sun Chuen, Kowloon

Lai Chi Kok (Hong Kong Industrial A2, G/F, Hong Kong Industrial Centre, 2745 1491Centre) Branch 491 Castle Peak Road, Kowloon

Lai Chi Kok Road Branch 282-284 Lai Chi Kok Road, Sham Shui Po, 2728 7216Kowloon

Sham Shui Po Branch 207-211 Nam Cheong Street, Sham Shui Po, 2777 0171Kowloon

Sham Shui Po (On Ning Building) 147-149 Castle Peak Road, Sham Shui Po, 2708 3678Branch Kowloon

New Territories & Outlying IslandsBranch Address Telephone

Sha Tin DistrictJat Min Chuen Branch Shop 1, G/F, Ming Yiu Lau, Jat Min Chuen, 2647 8784

Sha Tin, New Territories41 Tai Wai Road Branch 41-45 Tai Wai Road, Sha Tin, New Territories 2929 428874 Tai Wai Road Branch 74-76 Tai Wai Road, Sha Tin, New Territories 2699 9523Fo Tan Branch No 2, 1/F, Shatin Galleria, 2691 7193

18-24 Shan Mei Street, Fo Tan,New Territories

Lucky Plaza Branch Lucky Plaza, Wang Pok Street, Sha Tin, 2605 6556New Territories

City One Sha Tin Branch Shop A, 16-20 Ngan Shing Commercial Centre, 2648 8083City One, Sha Tin, New Territories

Sha Tin VIP Centre Shop 18, L1, Shatin Plaza, Sha Tin, 2688 7668New Territories

Sha Kok Estate Branch Shop 39, Sha Kok Shopping Centre, 2648 0302Sha Kok Estate, Sha Tin, New Territories

Heng On Estate Branch Shop 203, Commercial Centre, Heng On Estate, 2642 0111Ma On Shan, New Territories

Ma On Shan Plaza Branch Shop 2103, Level 2, Ma On Shan Plaza, 2631 0063Sai Sha Road, Ma On Shan, New Territories

Lung Hang Estate Branch 103 Lung Hang Commercial Centre, Sha Tin, 2605 8618New Territories

New Town Plaza Branch Shop 608, Level 6 Phase 1, New Town Plaza, 2606 6163Sha Tin, New Territories

Sunshine City Branch Shop 16, Blocks C & D, Sunshine City, 2631 1011Ma On Shan, New Territories

Lek Yuen Branch No 1, Fook Hoi House, Lek Yuen Estate, 2605 3021Sha Tin, New Territories

Tai Po DistrictTai Kwong Lane Branch 16-22 Tai Kwong Lane, Tai Po Market, 2652 2133

New TerritoriesTai Po Branch 68-70 Po Heung Street, Tai Po Market, 2657 2121

New TerritoriesTai Po Plaza Branch Unit 4, Level 1 Tai Po Plaza, 1 On Tai Road, 2665 5890

Tai Po, New TerritoriesOn Chee Road Branch Shop 10-11, Jade Plaza, 3 On Chee Road, 2665 1966

Tai Po, New TerritoriesFu Heng Estate Branch Shop 1-2, Fu Heng Shopping Centre, 2661 6278

Tai Po, New TerritoriesFu Shin Estate Branch Shop G11, Fu Shin Shopping Centre, 2663 2788

Tai Po, New TerritoriesKwong Fuk Road Branch 40-50 Kwong Fuk Road, Tai Po Market, 2658 2268

New Territories



Bank of China (Hong Kong) – Branch Network(continued)


Sai Kung DistrictSai Kung Branch 7-11 Wan King Path, Sai Kung, 2792 1465

New TerritoriesEast Point City Branch Shop 101, East Point City, Tseung Kwan O, 2628 7238

New TerritoriesHau Tak Estate Branch Shop 7, Hau Tak Shopping Centre, 2703 5203

Tseung Kwan O, New TerritoriesHKUST Branch The Hong Kong University of Science & 2358 2345

Technology, Clear Water Bay Road,New Territories

Tseung Kwan O Plaza Branch Shop 112-125, Level 1, Tseung Kwan O Plaza, 2702 0282Tseung Kwan O, New Territories

Po Lam Estate Branch Shop 207, Po Lam Shopping Centre, 2701 4962Po Lam Estate, Tseung Kwan O,New Territories

Tsuen Wan DistrictTai Wo Hau Branch 5-9 Tai Ha Street, Tai Wo Hau, Tsuen Wan, 2429 0304

New Territories407 Castle Peak Road Branch 407-411 Castle Peak Road, Tsuen Wan, 2920 3211

New TerritoriesClague Garden Branch Shop 1-3, Commercial Complex, 2412 2202

Clague Garden Estate, 24 Hoi Shing Road,Tsuen Wan, New Territories

Tsuen Wan Branch 297-299 & 313 Sha Tsui Road, Tsuen Wan, 2411 1321New Territories

Castle Peak Road (Tsuen Wan) 167 Castle Peak Road, Tsuen Wan, 2406 9932Wealth Management Centre New Territories

Castle Peak Road (Tsuen Wan) 201-207 Castle Peak Road, Tsuen Wan, 2416 6577Branch New Territories

Tsuen Wan VIP Centre 31-33 Chung On Street, Tsuen Wan, 2406 8908New Territories

Sham Tseng Branch Shop G1 & G2, Rhine Garden, Sham Tseng, 2491 0038New Territories

Fuk Loi Estate Branch 129-135 Sha Tsui Road, Tsuen Wan, 2499 0755New Territories

Texaco Road Branch Shop A112, East Asia Gardens, 2414 428736 Texaco Road, Tsuen Wan, New Territories

Kwai Tsing DistrictHa Kwai Chung Branch 192-194 Hing Fong Road, Kwai Chung, 2424 9823

New TerritoriesSheung Kwai Chung Branch 7-11 Shek Yi Road, Sheung Kwai Chung, 2480 6161

New TerritoriesCheung Hong Estate Branch 201-202 Commercial Centre No 2, 2497 7718

Cheung Hong Estate, Tsing Yi Island,New Territories

Cheung Fat Estate Branch Shop 317, Cheung Fat Shopping Centre, 2433 1689Tsing Yi Island, New Territories

Cheung Hong Estate Commercial 2 G/F, Commercial Centre, 2497 0325Centre Branch Cheung Hong Estate, Tsing Yi Island,

New TerritoriesMaritime Square Branch Shop 115, Maritime Square, Tsing Yi Island, 2436 9298

New TerritoriesLei Muk Shue Branch Shop 22, Lei Muk Shue Shopping Centre, 2428 5731

Kwai Chung, New TerritoriesMetroplaza Branch Shop 260-265, Metroplaza, 2420 2686

223 Hing Fong Road, Kwai Chung,New Territories

Kwai Cheong Road Branch 40 Kwai Cheong Road, Kwai Chung, 2480 3311New Territories

Kwai Chung Branch 432-436 Castle Peak Road, Kwai Chung, 2410 9133New Territories

Kwai Chung Road Branch 1009 Kwai Chung Road, Kwai Chung, 2424 3021New Territories

Kwai Chung Plaza Branch A18-20, G/F, Kwai Chung Plaza, 2920 24687-11 Kwai Foo Road, Kwai Chung,New Territories

Tuen Mun DistrictTuen Mun Town Plaza Branch Shop 2, Tuen Mun Town Plaza Phase II, 2450 8877

Tuen Mun, New TerritoriesTuen Mun Wealth Management Shop 5, Level 1, North Wing, Trend Plaza, 2404 9777

Centre Tuen Mun, New TerritoriesTuen Mun Fa Yuen Branch Shop G & H, 6 Tsing Hoi Circuit, Tuen Mun, 2458 1033

New TerritoriesTuen Mun San Hui Branch G13-G14 Eldo Court, Heung Sze Wui Road, 2457 3501

Tuen Mun, New TerritoriesSiu Hong Court Branch 226 Commercial Centre, Siu Hong Court, 2466 6703

Tuen Mun, New TerritoriesLeung King Estate Branch Shop 211, Leung King Shopping Centre, 2463 3855

Tuen Mun, New TerritoriesKin Wing Street Branch 24-30 Kin Wing Street, Tuen Mun, 2465 2212

New TerritoriesVenice Gardens Branch Shop13-15, G/F, Venice Gardens, 2455 1288

Leung Tak Street, Tuen Mun,New Territories

Butterfly Estate Branch Shop 123-130, Tip Ling House, 2920 5188Butterfly Estate, Tuen Mun,New Territories


Yuen Long DistrictTai Tong Road Branch Shop A135, 1/F, Hop Yick Plaza, 2479 2113

23 Tai Tong Road, Yuen Long,New Territories

Yuen Long Branch 102-108 Castle Peak Road, Yuen Long, 2474 2211New Territories

Castle Peak Road (Yuen Long) 162 Castle Peak Road, Yuen Long, 2476 2193Branch New Territories

Yuen Long (Hang Fat Mansion) 8-18 Castle Peak Road, Yuen Long, 2475 3777Branch New Territories

Tin Shui Estate Branch Shop 108-109, Tin Shui Shopping Centre, 2445 8728Tin Shui Wai, New Territories

Kau Yuk Road Branch 18-24 Kau Yuk Road, Yuen Long, 2473 2833New Territories

Kingswood Villas Branch A189 Kingswood Richly Plaza, Tin Shui Wai, 2448 3313New Territories

Kingswood Ginza Branch Shop G73, Phase 1 Kingswood Ginza, 2616 4233Tin Shui Wai, New Territories

North DistrictSheung Shui Branch 61 San Fung Avenue, Sheung Shui, 2671 0155

New TerritoriesSheung Shui VIP Centre 33 San Fung Avenue, Sheung Shui, 2639 9233

New TerritoriesLandmark North Branch Shop 351, Landmark North, Sheung Shui, 2670 3131

New TerritoriesSha Tau Kok Branch Block 16-18, Sha Tau Kok Chuen, 2674 4011

Sha Tau Kok, New TerritoriesFlora Plaza Branch Shop 28, Flora Plaza, 88 Pak Wo Road, 2675 6683

Fanling, New TerritoriesFanling Centre Branch Shop 2D-E & H, Fanling Centre, Fanling, 2669 7899

New TerritoriesChoi Yuen Estate Branch Shop 4, F3 level, Commercial Centre, 2671 6783

Choi Yuen Estate, Sheung Shui,New Territories

136 San Fung Ave Branch 136 San Fung Avenue, Sheung Shui, 2670 6138New Territories

Luen Wo Market Branch 17-19 Wo Fung Street, Luen Wo Market, 2675 5113Fanling, New Territories

Luen Shing Street Branch Shop B, 10-16 Luen Shing Street, 2675 6113Luen Wo Market, Fanling, New Territories

Outlying Island DistrictCheung Chau Branch 53-55 Tai Sun Street, Cheung Chau, 2981 0021

New TerritoriesHong Kong International Unit 7T075, Passenger Terminal Building, 2326 1883

Airport Branch Hong Kong International Airport

Mainland BranchesBranch Address Telephone

Shenzhen Branch G/F, The Kwangtung Provincial Bank Building, (86-755) 8233 02301013 Ren Min Nan Road, Shenzhen, China

Shenzhen Baoan Unit 108 Xushida Garden, Xin An Si Road, (86-755) 2785 3302Sub-Branch Baoan District 34-2, Shenzhen, China

Shenzhen Futian 1/F, Shen Ye Garden Club House, Caitian Road, (86-755) 8294 2929Sub- Branch Futian District, Shenzhen, China

Shantou Branch G/F, 3 Yingbin Road, Shantou, China (86-754) 826 8266Shanghai Branch Room A103-A107, Tomorrow Square, (86-21) 2306 9090

389 Nanjing West Road, Shanghai, ChinaQingdao Branch G/F, 6 Yun Xiao Road, Qingdao, China (86-532) 8573 2828

Network & Corporate Banking CentresNetwork & Centres Address Telephone

Corporate Business 10/F, Bank of China Tower, 2826 68891 Garden Road, Hong Kong

Corporate Finance 10/F, Bank of China Tower, 2826 64911 Garden Road, Hong Kong

Commercial Business I 9/F, Bank of China Tower, 2826 64091 Garden Road, Hong Kong

Commercial Business II 9/F, Bank of China Tower, 3419 35551 Garden Road, Hong Kong

Commercial Business III Unit 702-706, The Gateway Tower 3 2247 8888(Prudential Tower), 21 Canton Road,Tsim Sha Tsui, Kowloon

Financial Institutions 33/F, Bank of China Tower, 2903 6666Business (Banks) 1 Garden Road, Hong Kong

Financial Institutions 33/F, Bank of China Tower, 2826 6888Business (Non-Banks) 1 Garden Road, Hong Kong

Hong Kong Central & 24/F, Bank of China Tower, 3419 3513West Commercial Centre 1 Garden Road, Hong Kong

Hong Kong Central &West SME Centre

Hong Kong East Commercial 3/F, Eastern Commercial Centre, 2833 8790Centre 393-407 Hennessy Road, Wan Chai,

Hong Kong East SME Centre Hong Kong

Kowloon East Commercial Centre Room 607-610, 6/F, Telford House, 3406 7300Kowloon East SME Centre 16 Wang Hoi Road, Kowloon Bay,

Kowloon



Network & Corporate Banking Centres(continued)

Network & Centres Address Telephone

Kowloon East Commercial Centre Room 601, 6/F, Stelux House, 2263 4900San Po Kong Office 698 Prince Edward Road East,

San Po Kong SME Centre San Po Kong, Kowloon

Kowloon East Commercial Centre Room 507, 5/F, Tower A, 2197 0188Hung Hom Office Hung Hom Commercial Centre,

Hung Hom SME Centre 37-39 Ma Tau Wai Road, Kowloon

Kowloon West Commercial Centre 3/F - 7/F & 9/F, Kwangtung Provincial 3412 1688Kowloon West SME Centre Bank Building, 589 Nathan Road,

Mong Kok, Kowloon

New Territories East Commercial 3/F, 68-70 Po Heung Street, 2654 3222Centre Tai Po Market, Tai Po, New Territories

New Territories East SME Centre

New Territories East Commercial Room 1408-1411, 14/F, Shatin Galleria, 2687 5665Centre Fo Tan Office 8-24 Shan Mei Street, Fo Tan,

Fo Tan SME Centre New Territories

New Territories West Commercial Room 1720-1724, Nan Fung Centre, 3412 7044Centre 264-298 Castle Peak Road,

New Territories West SME Centre Tsuen Wan, New Territories

New Territories West Commercial 4/F, The Kwangtung Provincial Bank 2442 8788Centre Yuen Long Office Building, 102-108 Castle Peak Road,

Yuen Long SME Centre Yuen Long, New Territories

Causeway Bay Commercial 2/F, 18 Percival Street, Causeway Bay, 2892 7032Services Centre Hong Kong

Cheung Sha Wan Commercial Unit 1, Kowloon Plaza, 2310 5923Services Centre 485 Castle Peak Road, Kowloon

Trade Finance Trade Product 5/F, Bank of China Centre, Olympian City, 3198 354411 Hoi Fai Road, West Kowloon

Trade Finance Trade Services 5/F-10/F, Bank of China Centre, Olympian City, 3198 3388Centre 11 Hoi Fai Road, West Kowloon

Nanyang Commercial Bank – Branch NetworkBranch Address Telephone

Head Office 151 Des Voeux Road, Central, Hong Kong 2852 0888

Hong Kong IslandWestern Branch 128 Bonham Strand East, Sheung Wan, 2851 1100

Hong KongCauseway Bay Branch 472 Hennessy Road, Causeway Bay, 2832 9888

Hong KongHappy Valley Branch 29 Wong Nei Chung Road, Happy Valley, 2893 3383

Hong KongKennedy Town Branch 86 Belcher’s Street, Kennedy Town, 2817 1946

Hong KongQuarry Bay Branch 1014 King’s Road, Quarry Bay, Hong Kong 2563 2286Des Voeux Road West Branch 334 Des Voeux Road West, Hong Kong 2540 4532Aberdeen Branch 171 Aberdeen Main Road, Aberdeen, 2553 4115

Hong KongNorth Point Branch 351 King’s Road, North Point, Hong Kong 2566 8116Sheung Wan Branch 21 Connaught Road West, Sheung Wan, 2559 0888

Hong KongSai Wan Ho Branch 63 Shaukeiwan Road, Sai Wan Ho, Hong Kong 2567 0315Wanchai Branch 123 Johnston Road, Wanchai, Hong Kong 2574 8118Causeway Centre Branch Shop 16, Causeway Centre, 28 Harbour Road, 2827 6338

Wanchai, Hong KongCentral District Branch 56-58 Wellington Street, Central, Hong Kong 2522 5011Sunning Road Branch 8 Sunning Road, Causeway Bay, Hong Kong 2882 7668

KowloonMongkok Branch 727 Nathan Road, Mongkok, Kowloon 2394 8206Yaumati Branch 309 Nathan Road, Yaumati, Kowloon 2782 9888Ferry Point Branch Shops D-F, G/F, Best-O-Best Commercial Centre, 2332 0738

32-36 Ferry Street, Yaumati, KowloonHomantin Branch 71A Waterloo Road, Homantin, Kowloon 2715 7518Nathan Road Branch 570 Nathan Road, Mongkok, Kowloon 2780 0166Laichikok Road Branch 236 Laichikok Road, Shamshuipo, Kowloon 2396 4164Jordan Road Branch 20 Jordan Road, Yaumati, Kowloon 2735 3301Tokwawan Branch 62 Tokwawan Road, Kowloon 2764 6666Kwun Tong Branch 410 Kwun Tong Road, Kowloon 2389 6266Tsimshatsui Branch Shop A, 1/F, Hong Kong Pacific Centre, 2376 3988

28 Hankow Road, Tsimshatsui, KowloonHunghom Branch 69A Wuhu Street, Hunghom, Kowloon 2362 2301Shamshuipo Branch 198-200 Tai Po Road, Shamshuipo, Kowloon 2777 0147Yee On Street Branch Shops 4-6, G/F, Yee On Centre, 2790 6688

45 Hong Ning Road, KowloonPeninsula Centre Branch Shop G48 Peninsula Centre, 67 Mody Road, 2722 0823

Tsim Sha Tsui, KowloonSan Po Kong Branch 41-45, Yin Hing Street, San Po Kong, Kowloon 2328 5555Kowloon City Branch 86 Nga Tsin Wai Road, Kowloon City, Kowloon 2716 6033Laguna City Branch Shop No. 26, Phase 1 Laguna City, 2772 3336

Cha Kwo Ling Road, Kowloon

New TerritoriesKwai Chung Branch 100 Lei Muk Road, Kwai Chung, 2480 1118

New TerritoriesTai Po Branch Shop No. 11, G/F, Treasure Garden, 2656 5201

1 On Chee Road, Tai Po, New TerritoriesYuen Long Branch G/F, Tung Yik Building Tai Tong Road, 2479 0231

Yuen Long, New TerritoriesHa Kwai Chung Branch 180 Hing Fong Road, Kwai Chung, 2429 4242

New Territories


Tsuen Wan Branch 78 Chung On Street, Tsuen Wan, 2492 0243New Territories

Sheung Shui Branch 31 Fu Hing Street, Sheung Shui, 2679 4333New Territories

Tuen Mun Branch Forward Mansion, Yan Ching Circuit, 2459 8181Tuen Mun, New Territories

Shatin Branch Shop 7-8, Lucky Plaza, Shatin, New Territories 2605 9188Luk Yeung Sun Chuen Branch P2A-C, 1/F, Luk Yeung Galleria, 2498 4411

22-26 Wai Tsuen Road, Tsuen Wan,New Territories

Sai Kung Branch Shop 11-12 Sai Kung Garden, 2791 1122Man Nin Street, New Territories

The Mainland of ChinaShenzhen Branch Nanyang Mansion, 2002 Kin Chit Road, (86-755) 2515 6333

Shenzhen, ChinaShenzhen Shekou Sub-Branch Shekou Finance Centre, Taizi Road, (86-755) 2682 8788

Shenzhen, ChinaHaikou Branch Room 702-703, 7/F, Haikou Nanyang (86-898) 6851 2538

Building, 81 Bin Hai Avenue,Haikou, Hainan Province, China

Guangzhou Branch 4/F, CITIC Plaza, (86-20) 3891 2668233 Tianhe North Road,Guangzhou, China

Dalian Branch 1/F, Li Yuan Mansion, (86-411) 8282 363616-18 Mingze Street, Dalian,Liaoning Province, China

Beijing Branch Level 1A, Regent Court, (86-10) 6568 4728No. 8B, Jian Guo Men Wai Da Jie,Beijing, China

OverseasSan Francisco Branch 31/F, 50 California Street, (1-415) 398 8866

San Francisco, CA94111, USA

Chiyu Banking Corporation – Branch NetworkBranch Address Telephone

Head Office 78 Des Voeux Road Central, Hong Kong 2843 0111

Hong Kong IslandNorth Point Branch 390-394 King’s Road, North Point, Hong Kong 2570 6381Wanchai Branch 325 Hennessy Road, Wanchai, Hong Kong 2572 2823Sheung Wan Branch 22-24 Bonham Strand West, Hong Kong 2544 1678Western Branch 443 Queen’s Road West, Hong Kong 2548 2298Quarry Bay Branch 967-967A, King’s Road, Quarry Bay, 2811 3131

Hong Kong

KowloonHung Hom Branch 23-25 Gillies Avenue, Hung Hom, Kowloon 2362 0051Kwun Tong Branch 42-44 Mut Wah Street, Kwun Tong, Kowloon 2343 4174Sham Shui Po Branch 235-237 Laichikok Road, Kowloon 2789 8668San Po Kong Branch 61-63 Hong Keung Street, San Po Kong, 2328 5691

KowloonYau Ma Tei Branch 117-119 Shanghai Street, Yaumatei, Kowloon 2332 2533Castle Peak Road Branch 226-228 Castle Peak Road, Kowloon 2720 5187Kowloon Bay Branch Shop No. 10 G/F, Kai Lok House, 2796 8968

Kai Yip Estate, Kowloon Bay, KowloonTokwawan Branch G/F, Shop No. 11-13, 78 Tokwawan Road, 2765 6118

KowloonTsz Wan Shan Branch Shop 703A, 7/F, Tsz Wan Shan Shopping 2322 3313

Centre, 23 Yuk Wah Street, Tsz Wan Shan,Kowloon

New TerritoriesTuen Mun Yau Oi Estate Branch Shop No. 103-104, G/F, Restaurant Block, 2452 3666

Yau Oi Estate, Tuen Mun, New TerritoriesKwai Hing Estate Branch Shop No. 1, G/F, Hing Yat House, 2487 3332

Kwai Hing Estate, Kwai Chung,New Territories

Tai Po Tai Wo Estate Branch Shop No. 112-114, G/F, On Wo House, 2656 3386Tai Wo Estate, Tai Po, New Territories

Belvedere Garden Branch Shop No. 5A, G/F, Belvedere Square, 2411 6789Tsuen Wan, New Territories

Tsuen Wan Branch Shop No. 1 & 1d, Level 2, 2413 8111Discovery Park Commercial Centre,Tsuen Wan, New Territories

Shatin Sui Wo Court Branch Shop No. F7, Commercial Centre, 2601 5888Sui Wo Court, Shatin, New Territories

Ma On Shan Branch Shop 313, Level 3, Ma On Shan Plaza, 2640 0733Bayshore Tower, Ma On Shan,New Territories

Sheung Tak Estate Branch Shop No. 238, Sheung Tak Shopping Centre, 2178 2278Sheung Tak Estate, Tseung Kwan O,New Territories

The Mainland of ChinaXiamen Branch 1/F, 859 Xiahe Road, Xiamen, (86-592) 5851 691

Fujian Province, ChinaFuzhou Branch 1/F, International Building, (86-591) 8781 0078

210 Wusi Road,Fuzhou Fujian Province, China

To be your premier bank

Buildcustomer satisfaction and provide quality and professional service

Offerrewarding career opportunities and cultivate staff commitment

Createvalues and deliver superior returns to shareholders

Social ResponsibilityWe care for and contribute to our communities

PerformanceWe measure results and reward achievement

IntegrityWe uphold trustworthiness and business ethics

RespectWe cherish every individual

InnovationWe encourage creativity

TeamworkWe work together to succeed

OuR VISIOn OuR mISSIOn OuR CORe ValueS

Stock Code: 2388

Achieving Growth, Quality and Excellence

Summary Financial Report

2006This Summary F inancia l Report only gives a summary of the information and part iculars contained in the “2006 Annual Report” (“Annual Report”) of the Company from which this Summary Financial Report is derived. Both the Annual Report and this Summary Financial Report are available (in English and Chinese) on the Company’s website at www.bochk.com and the Stock Exchange’s website at www.hkex.com.hk. You may obtain, free of charge, a copy of the Annual Report (English or Chinese or both) from the Company’s Share Registrar, Computershare Hong Kong Investor Services Limited, details of which are set out in the “Shareholder Information” section of this Summary Financial Report.

Combining the initials of mission

and core values, we have

BOC SPIRIT

a Better Tomorrow

Committed to Building

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Be environmentally friendly for our better future As a good corporate citizen, we do not use lamination and spot UV as normally adopted by the industry in our annual report 2006. Instead, we use varnishing, an environmentally friendly technique. The whole report is also printed on recyclable and elemental chlorine free paper. This demonstrates our efforts in working for the betterment of our future generations.

52/F Bank of China Tower, 1 Garden Road, Hong KongWebsite: www.bochk.com

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Sum

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THIS REPORT IS PRINTED ON ENVIRONMENTALLY FRIENDLY AND ELEMENTAL CHLORINE FREE PAPER

1917

1997 20071977

19371957

committed to building a better tomorrow · looking forward, we are committed to building a better...

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